Being underwater with your mortgage is a terrible thing and no one buys a house thinking about the fact that it could happen to them. Some people might not even be aware of what an underwater mortgage even means let alone what they can do to solve the problem.
In the following article we will talk about what the term underwater mortgage means and different things you can do if you find yourself in that situation.
The Definition of Underwater Mortgage
You will not start out with an underwater mortgage but it can happen if you make poor financial choices, and sometimes just because of bad circumstances. Before you buy a home through a bank they will typically want an appraiser to take a look at the home and say what it is worth so the bank knows how much they should borrow you for the home. When you take out the mortgage for the first time it will be for the value of the home, minus whatever down payment you put on it. Over time however things can change and it can end up that you owe more on the house then it is actually worth. Basically even if you sold the house at current fair market value you would still not be able to cover the cost of the current mortgage. This is the definition of an underwater mortgage.
How can an underwater mortgage occur?
As stated earlier, a homeowner will never start out with an underwater mortgage, but circumstances can happen over time that will result in an underwater mortgage.
Sometimes an underwater mortgage can happen when the homeowner refinances the house. When you refinance the lending institution will want a current appraisal on the home because they will not be willing to use the one that you had when you first bought the house. If your property value has gone down you will not have enough equity in the home and you may find yourself with an underwater mortgage situation.
Underwater mortgage can also result in a homeowner borrowing too much against the home. Sometimes, people decide to borrow against the mortgage because the loan rates for the mortgage are at a much better rate than taking out another loan. The lender will decide to offer the loan depending upon the homeowner's credit rating, secure job, and good financial standing, and sometimes does so even if the mortgage has not been paid off. Then, months later, the homeowner's financial situation dramatically worsens by a sudden job loss, unexpected medical bills, etc. and the home is worth less than the amount of the mortgage must pay on it.
The situation that many homeowners fall into is the circumstance that they have the least control over. They bought their property and over time the property lost value while the mortgage amount stayed the same. In this case, the neighborhood may have worsened or the local real estate market is experiencing a heavy buyer's market. Or, the neighborhood is experiencing a high volume of foreclosures. Regardless of the reason, the value of the home is lower than the mortgage.
What can I do if I have an underwater mortgage?
If you find yourself underwater the best thing to do is speak with your current lender. Some banks, and lending institutions, will convert your loan to something with either more time, or maybe lower rates to help get you out from being underwater. Each situation will be handled differently so make sure you speak with the lien holder to try to find the right solution for your problem.
If you find yourself in a neighborhood that is going downhill fast it might be better to just sell the home for what you can and move to a new place. This is when working with a real estate investor would be a good thing because they can help you sell a house quickly.
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Article Source: http://EzineArticles.com/expert/Melissa_Gifford/1520795
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