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HELP! I owe more than my home is worth.

By Nate Ellis

Real Estate Agent with HomeWay.tv - Keller Williams Realty East Bay 925-337-8489

December 03, 2007 03:54 PM

What do you do if your payments go up and you owe the bank more than your home is worth? There are several options for you to save your home and your credit. It all depends on where you are in the process. Your best options are of course before your finances are strained.

•·         Keep making your payments as normal
•·         Talk to your current lender
•·         Refinance up to 125% of the home's value
•·         Get FREE grant money to bring the mortgage current
•·         Sell the home
•·         Foreclosure

So you wanted a piece of the American Dream. You found a home and got approved for more than you thought was possible with no money down. Your mortgage payments were even less than you were paying for rent. Was it all too good to be true?

Your mortgage interest rate has either already adjusted or is about to adjust, increasing your payments far more than what a comfortable housing payment would be. You called your lender to lock in a fixed rate. "Why are they asking for my last 2 years taxes?" They didn't even ask for a paystub when you bought the house. Hmmm...

After some frantic calls from your banker you get the message that you can't refinance because your home has dropped in value and you don't make enough money to make the new payments on your home. You are in jeopardy of losing the American Dream. You may lose your home. The bank may foreclose on your home.

Your Options

Keep making your payments. Continue to make your housing payments as long as you can. The worse thing you can do is to STOP paying your mortgage. Not paying your mortgage will limit the options you have to get in a better situation.

Talk to your current lender. You may be able to renegotiate the terms of your mortgage. Some lenders are offering to extend your current teaser rate or offer a rate lower than what your mortgage is scheduled to readjust to.

There are a few lenders willing to lend up to 125% of your home's value. The Federal Housing Authority (FHA) has loosened guidelines to help homeowner's whose rates have spiked up through their FHA Secure program. FHA will currently finance up to 97% of your homes' value. The FHA Loan Limits currently max out at $362,790 for a single family home up to $697,696 for a four family home. The loan limits vary by county.

Your second mortgage lender will need to subordinate their position to allow the new financing to go in place. If the lender is not willing to subordinate there are a few lenders willing to lend up to 125% of your home's value. There is a premium for these loans. If your mortgages are greater than the FHA loan limits there are still a few lenders with options.

If you have fallen behind on your mortgage payments there are non-profit agencies offering FREE grants to help bring your mortgage current. These grants are funded by mortgage lenders like HSBC, Citi Bank, Countrywide, Wells Fargo and other institutional lenders. You will need to qualify for financing and show the ability to be able to repay the mortgage after you receive the funds. You may also receive or be required to attend financial counseling. Tips for preparing the grant application will appear in a future blog.

Please note the lenders do not directly administer these programs. These programs are set up through local and national non-profit credit agencies. These programs are not available in all states.

If after all the financial options to save your home have been reviewed and you have decided or can't qualify to keep your home, you want to avoid the final option of foreclosure, you will need to sell your home.

There are many things to address when considering the sale of your home for less than you owe (aka. Short Sale). Be sure to seek the advice of several professionals including Loan and Real Estate Agents, Tax Professionals, Legal Counsel and Credit Counselors before making any decisions concerning the financing of your home. Do your homework and don't be afraid to ask questions. These decisions will stay with you for a very long time.

BEWARE there are many people who will take advantage of you in your situation. If you don't understand something, don't sign it. While there may be time sensitive decisions don't let anyone with financial gain rush you to a decision. You may not have understood all the risks when you bought the property. DO NOT make the same mistake when trying to sell the home.

Mortgage guidelines are currently written in sand and are changing daily with the tide. Don't let the current market wash away your homeownership dreams, let it help you get a clean slate.

Comments(18)

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Karen Monsour

Coldwell Banker Fort Lauderdale Beach - Fort Lauderdale, FL

REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert!

In this market, so do most people...hmmm....oppsss? You have to be a mortgage guy...great post, good advise!

Dec 03, 2007 03:57 PM

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Thank you for reading Karen. I do help people find the right financing options for thier situation.

Dec 03, 2007 04:11 PM

Brett Noel

Keller Williams - Paso Robles, CA

good blog, valuable information

Dec 03, 2007 04:29 PM

Karen Anne Stone

New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX

Fort Worth Real Estate

Hi Nate: I think that many... perhaps even a majority of the homeowners in the "bubble" cities are facing the painful decision that maybe simply walking away from their homes just might be their best option. I have heard of some who owe much more than their homes are worth... renting their home for as much as they can get, and then moving their families across the country to markets where the cost of both housing and living is much, much less. Then, renting the home left behind as long as possible, and then just "letting it go." For these unfortunate folks... there may not be many choices.

Dec 03, 2007 04:37 PM

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Bret, Thanks for the feed back. Keep up the positive message.

Dec 03, 2007 04:41 PM

Jon Zolsky, Daytona Beach, FL

Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL

Buy Daytona condos for heavenly good prices

Nate,

Very good blog. I wish you were in Florida.

Thanks

Dec 03, 2007 04:45 PM

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Karen,

Unfortunally for many people walking away may be thier best option. Many of these people may have been able to save their home if we good have gotten them the info sooner.

Dec 03, 2007 04:47 PM

Susan Walters

Keller Williams Realty, Ann Arbor, MI - Ann Arbor, MI

Bret, I am living in one of the markets Karen described but it seems no lender is willing to do what you are describing since Michigan has been declared a declining market. Our foreclosures are out of control and I would love to help people who find themselves in a bad situation but short sales are the name of the game. Those who can't handle that stress of listing AND having to negotiate the price with the lender are more comfortable letting the property go. In all honesty, as much as it destroys credit, foreclosure without making payments allows a family time to stabilize and live in their property as long a possible. From a lender perspective, horrible, but from a homeowner perspective, particularly if they were over-lent, well, I can see their point.

Dec 03, 2007 04:53 PM

Nancy Brenner

Referral Associates of Georgia, Inc. - Roswell, GA

Roswell Georgia Real Estate Agent

Nate - Thanks for letting the public know that there are choices - maybe not for all - but for most.

Dec 03, 2007 04:57 PM

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Jon,

Thanks for the comments. I have been able to help people in Florida in the past.

Dec 04, 2007 05:36 AM

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Susan,

Thank you for sharing the conditions in your market. Every market is different. While not everyone's home can be saved there are some out there we can help, even in a declining market area. If we can help people get out of the messes they are in today, they can be our clients again in the nearer future.

Dec 04, 2007 05:40 AM

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Nancy- Thank you please help to get the word out.

Dec 04, 2007 05:42 AM

Anonymous

Raymond Sanchez

I am a current resident of the falling MI market that has a home that is currently at an alarming 11.7% ARM. I ahve never been late on my mortgage and have good credit, I have not been able to find help. I NEED HELP and no one is listening. After talking to about a half dozen loan officers and brokers I am left exactly where I started. Purchasing a new home in a better market and letting my house go has crossed my mind a little to often lately. What else can I do? My wife and I can go out and get a new home with a 5.5% fixed rate and a higher loan amount for less than we pay now. This is what are government has to offer to new purchasers, how about the people who have paid their bills and taxes, just to loose the one thing that was supposed to be the best investment in our lives. My wife and I are struggling to make the mortgage payments now and if it adjusts again....

Feb 24, 2008 05:06 AM

#13

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Raymond - Thank you for your comments. There are many people around the country facing the same dilemma as you. The Banks have tightened their lending standards and it is getting harder to help people in need. I want to answer some of the questions you have posed in your comment here below.

I want to first direct you to information about the President's Mortgage Bailout Plan. If your first rate adjustment was in Jan 2008 or later and you meet the other requirements you may be eligible for this option, but it sounds like this is not the case.

I also want to advise you to consider all the consequences if you choose to walk away from this home and purchase another. The new tax law will forgive up to $1MM when a short sale or foreclosure happens on your primary residence. If you buy a new home you may be taxed for the monies forgiven from the lender. Consult a tax adviser in your area to see how this ma impact you.

Call Your Lender Again, and Again The rules are changing daily. Contact your current lender and find out if they can do a work out for you. You do need to let them know the strain the new mortgage payments have put on you and you don't know how long you can sustain making them. It is far cheaper for the lender to try to work something out than the alternatives.

Adjustable Rates are Coming Down. In recent months the indexes that the adjustable rates are based on have fallen. This may ease some of the strain, but you may have to wait until your loan is scheduled to readjust again.

There may be other options available for you. Please feel free to contact me directly so we can have a more detailed dialogue.

Danke Schoen,

Nate Ellis

Feb 26, 2008 10:03 AM

Anonymous

Mary

Danke,

I am hoping you can offer some help regarding our current situation. Let me preface this by saying that we are active duty military and are forced to move at other's discretion. We bought our current home a little over a year ago in the Phoenix metro area. We were given orders to relocate and we did not want to lose money on renting a home, so we bought the cheapest house (a short-sale) we could find that would accomodate our family of 6. Now, we are facing orders to move again, soon. We purchased our home for about 200,000 and current market conditions place our current value around 35-40% less than what we owe. We have no problems making our payments, we budgeted well and did not buy beyond our means. However, what can we do? We do not have 70-80,000 to bring to the table if we sell for less than our home is worth. We are considering, when the time comes for us to move, to try a short-sale or let the property go into foreclosure. We are hoping since my name in not on the loan, only my husband's credit will be affected and we can still purchase another home. Do you have any suggestions for individuals in this specific situation?

Feb 22, 2009 04:02 AM

#15

Nate Ellis

HomeWay.tv - Keller Williams Realty East Bay 925-337-8489 - Concord, CA

"Mr Danke Schoen"

Mary,

Thank you for sharing your story with me. There are many homeowners in the same situation as you. There are options for you to save your Home and Your Credit.

1. Investigate the Rental Market - You may be able to rent your home and recover most of what you are paying on the mortgage. This frees you up to hold on to the home till the Market Recovers in Phoenix.

2. The New Wave of the Obama Stimulus Plan has been signed and detail are due out soon. We expect to hear about some of the new Plans after March 10th. $75 Billion has been allotted for people in your situation we just don't know yet how the program will be implemented, so hang in there.

3. Get an appointment with a local Housing Councilor. They can offer FREE information about all the options you may have.

4. Contact your Mortgage Company and find out if they can help. they typically only do Loan Modifications for people planning on living in the home. It may take a while to get a hold of the right person but diligence pays off.

5. A Short Sale may be an Option. An Employer Relocation is considered a Hardship that lenders will allow this type of sale for. You will need a strong agent that understands how to market this type of property and get a deal done with the bank. If you need a recommendation I know a few Agents in Phoenix that can help.

6. Foreclosure - This should be the last resort! Today Foreclosures do not only effect the person on the loan if married. Many lenders are requiring that married spouses credit reports are pulled at the same time reguardless of who is responsible for the loan.

If you have any other questions feel free to email me or Call

Nate Ellis

Nate@HomeWay.tv

925-337-8489

Feb 22, 2009 04:29 AM

Anonymous

donna

Hi Nate,

I am at my wit's end. Our home is about to be foreclosed because we can no longer afford the 10.5% interest rate. I tried talking to my bank but they are unwilling to help. For a loan modification they determined that I was not making enough money. No one will refinance since we have no proof of income. I clean houses for a living and my husband is house painter. We don't have tax info for the last 2 years since we have not paid. Is there any help for me and my family? Our house is all we have and we have spent the last 3 years putting everything we have into it.

Please, please help!!!

Apr 03, 2009 02:45 PM

#17

Anonymous

Rodger Welch

My 70 year old mother decided to sell her FHA home in Louisiana (I am in Florida) and after she signed with a real estate agent she called FHA and the booklet said she owed less than $3,000.00 but was told by FHA she would have to pay them $67,000.00 when the house was sold. My question is what is the money owed to FHA about? My mother was so shocked she completed forgot what they said. I know when my parents purchased the home in 1987 many times they had to have the payments lowered because of there income status. When my father died 21 years ago she had the payments lowered even more. What should be my next step to help her since she did not tell me until now what her plans were?

Jun 09, 2009 12:16 PM

#18

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