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No matter what happened, having an underwater home is no walk in the park. If your home is underwater that means that you owe more on your home than it is worth. Owning an underwater home may make you feel like you’re trapped, but you do have options.
Stay and Pay
If you love your home and are willing to wait things out, remaining in your home and continuing to make payments may be a good option for you. A home is where memories are made, and you may not want to give them up. If this is the case, there are things that you can do–if your finances allow–to pay off the mortgage more quickly and get back on track. For example, you could pay more on principal each month or make lump sum payments on top of your regular monthly payments.
Evaluate Your Loan
It may not make a difference in the value of your home, but if your lender is willing to allow you to refinance your mortgage, it is something to think about. Refinancing your loan can give you lower interest rates, and you may be able to take advantage of things like paying biweekly which can help you to pay off your loan faster. This option has the added benefit of not negatively affecting your credit score. When you refinance, you are essentially paying off your old loan with a new one. Another option you have is a loan modification. With a loan modification you may be able to forgive some of what you owe, decrease the interest rate on your loan, or even extend the length of the loan.
A short sale is a way of selling your home for less than what you owe on your mortgage. You must get your bank to agree to a short sale, and it may take longer than a normal sale, because it requires a lot of attention to detail, paperwork, and approval from your lender. Short sales allow you to sell your home for less than you owe, but you may still be responsible for paying off the difference. However, your lender may forgive the difference on the loan and just take the loss. A short sale will affect your credit score, but not as much as a foreclosure or bankruptcy.
Foreclosure probably won’t be your first, second, or maybe even third option, but eventually it may be the right decision for you. When deciding whether or not to let your home go into foreclosure, it is extremely important to speak with a legal advisor of some sort. Foreclosing on your home can severely damage your credit score, and you may still have to continue to pay the remainder on your mortgage. Deciding that it is time to walk away from your home and go into foreclosure is going to be a hard decision to make and an even more difficult thing to do.
Filing for bankruptcy gives you time to pay off debts acquired prior to filing which can help you to catch up on your mortgage. It is unlikely that you will pay off the entire mortgage, whether you file for Chapter 13 or Chapter 7 bankruptcy. However, it may be a good option for you. Not everyone should run out and file for bankruptcy; it really effects your credit score and isn’t always necessary, but it can be helpful. Filing for bankruptcy allows you to pay off other debts, freeing up more money for you to put toward your mortgage. It will also put a halt on a foreclosure since it is considered an act of collections, which is not allowed when someone files bankruptcy. Be sure to talk with a lawyer or some sort of legal advisor before you decide on bankruptcy.
Guest post from Marley Lane. Marley writes for HouseInsurance.com.