Question: I am upside down in my mortgage loan. Each month is a struggle to make the payment and I need to reduce my housing costs. What can I do?
With the country still slowly recovering from the recent housing market crash, many people owe more on their house than it is worth. While there are no easy answers to being upside down, it is important to make a careful and thoughtful decision since your actions can have long term credit and financial implications.
Go through your budget to determine what amount you can reasonably afford to pay for your home each month. Be sure to factor in creating a small emergency fund as well as paying off any other debt. Consider if a temporary reduction in your mortgage payment would help you get back on your feet or if your financial issues are more of a long term issue.
Once you know what you can afford without sleepless nights, investigate the following three options:
1. Talk To Your Bank Or Mortgage Lender.
Your first step should be to talk with your lender to discuss your situation and options available. Ask the bank about any mortgage reduction programs or any other ways they can work with you to bring your monthly bill to the amount that you can afford. While not all financial institutions will work with you, many banks can provide temporary reduction or refinancing options.
2. Look Into Federal Mortgage Relief Programs.
The Making Home Affordable program through U.S. Departments of the Treasury & Housing and Urban Development offers a variety of programs to help homeowners meeting specific criteria. The Principal Reduction Program helps homeowners underwater with their mortgage reduce the amount they owe. The Home Affordable Refinance program helps people refinance if they are up-to-date on their payments, but owe more than the home is worth.
3. Consider A Short Sale.
Another option is to sell your home as a short sale. A short sale is when you negotiate with your bank to sell your home at a price less than the amount you owe. Banks will often only approve short sales when it makes financial sense for them to do so. Since there can be tax ramifications to a short sale, be sure to consult your tax adviser before making a decision. The decision could also have an impact on your credit score. “The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all 'not paid as agreed' accounts," according to FICO, which provides the bulk of all credit scores.
By taking the time to investigate all of your options and determine which makes the most sense both now and in the long term, you can feel confident that you are making the best decision possible for your family and your financial future.