Many homeowners are trapped in a difficult position. Their mortgage balance is more than the actual value of their home. This kind of problem may be the result of some events that people cannot control, such as a deteriorating neighborhood, falling real estate prices, etc. However, “underwater” homeowners may also be in their current condition because of their own fault, such as taking an adjustable rate mortgage, or borrowing more than what they can afford by taking an excessive equity loan. Being “underwater,” or also referred to being “upside down,” is not a comfortable position. But the problem is that it is not easy to escape it. The ideal way to solve this problem is to continue paying the mortgage. But people who want to start over need to take a drastic step. In many cases, “underwater” homeowners need to sell their home cheaply. The following are some options that might be the right solutions for homeowners who are “underwater.”
1. Short Selling the Home
If the difference between the amount of mortgage and the sale price of the home is small, short selling can be a good option. In short selling, the homeowner can use check to pay off the mortgage balance. However, if the homeowner must sell the property but cannot afford to pay off the mortgage balance, the holder of the mortgage must be contacted to arrange everything. Arranging a short sale with a lender is not an easy task. Homeowners who want to short sale their home often need to wait a long time and deal with lots of paperwork. After the lender agrees to do the short sale, the homeowner must find a real estate agent to handle the sale. However, after the short sale, there is a chance that the homeowner might end up owing money to the bank.
2. Foreclosure
When homeowners realize that the difference between the home’s sale price and the amount that the bank is willing to accept is too much, foreclose may be a better option. However, foreclosure is only to be taken when there are no other solutions available. Doing a short sale hurts people’s credit score, but a foreclosure is worse. People must remember that a bad credit score will affect many things in their life.
To avoid getting trapped in “underwater” position, people should choose to get a mortgage to buy a home that they can actually afford. People should also try to pay off their mortgage as quickly as they can. According to an expert, it is always a good idea to make a substantial amount of down payment when taking a mortgage, because by doing so, people can have enough home equity that keep them safe in case home values decline
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