In many cases, the best option is simply to do nothing. Or rather, to keep making your monthly mortgage payments and let the problem resolve itself. Because in most cases, your home equity will rebound. With every monthly payment you make, you pay down your loan balance.
Some Upside-Down Mortgage Solutions
This situation can occur when property values are falling. In an underwater mortgage, the homeowner may not have any equity available for credit. An underwater mortgage can potentially prevent a borrower from refinancing or selling the home unless they have the cash to pay the loss out of pocket.
When the value of a property falls below the outstanding balance on the mortgage, it's called negative equity. That means you owe more on your home than it's worth. This is also known as being underwater or upside down on your mortgage.
An upside-down loan is a loan balance that exceeds the market value of your car or home. In other words, you owe more than you own. This often happens when something you buy with debt loses value faster than you pay down the loan balance.
When you owe more money on your mortgage than your home is worth, your mortgage is considered to be underwater. No homeowner wants to be underwater. It can be difficult, if not impossible, to earn a profit when trying to sell an underwater home.
If you can afford the monthly mortgage payments and don't want to move, being upside down may not have an immediate effect. However, it will take longer to build equity in your home, which will affect your ability to refinance or sell your home and make a profit.
You won't be able to refinance your loan if you're underwater. Most lenders need you to have some equity in your property before you refinance.
How to Sell a House That's Underwater: Navigating Your Options
Renting out your home if you are in negative equity
This would mean you keep the existing mortgage, although you will probably have to pay a higher interest rate.
If you are a selling a property with negative equity, you will need to discuss the sale with your mortgage lender as you cannot sell the property at a price lower than the money you owe on it unless you have a mechanism to pay the money back.
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