Dealing with Insufficient Equity: What to do When Your Home’s Mortgage is Upside Down

You would have to have been in a bubble to not have seen the troubles caused by the subprime mortgage crisis, the housing downturn, and the subsequent credit crunch. Exotic loans were made that probably shouldn’t have been; people were accepting unpopular terms on mortgages simply because they were happy to own a home. These loans were attractive to investors because the average interest rate (return on investment) was so high. Investors resold them, and they made their way around the block for many years before the foreclosure explosion slowed down the profit bonanza.
The inevitable result? Now we have as much as a one year inventory of existing homes on the market in some areas. Home sellers are consequently accepting less money for their domiciles which then lowers the average sales price of the houses on the market. What happens when the average sales price of homes in a particular area is reduced? The values of the existing homes is also reduced, so anyone who wants (or needs) to refinance their mortgage is forced to accept a lower value during appraisal.
If your home’s newly appraised value is below the amount of the loan for which you are now paying, you are considered to be “upside down” in your mortgage. This is a common occurrence with car ownership (the old adage that you will lose 10% of your car’s value as soon as you drive it off the lot is very valid). But with homes, people have become accustomed to consistent appreciation over time, which has been the source of wealth for many of our country’s citizens. Without that constant, reliable appreciation, many of these same citizens are unable to realize the wealth that has traditionally allowed them the ability to pay off their childrens’ tuitions, make improvement to their homes, and even start small businesses. Under the current conditions, more creative approaches are needed to experience the levels of equity that have traditionally been enjoyed.
All homes are different. There is no one method of solving these catastrophic problems. Some people may need to put their homes up for sale to avoid foreclosure. Some may need to renovate in order to be appraised at a higher value and lower interest rate which may lower their monthly payments. In addition, your family might be unsure of whether you should be renting or looking for a home of your own. The one answer common to all of these issues is the need to contact a professional with expertise in real estate sales and investment consulting. This is the best way to minimize your risk and maximize your return (just like the professional investors!) for the long term. Scott Miller is a Licensed Realtor ® and Real Estate Investment Consultant that will analyze your situation without any obligation to you to determine whether there is a solution to your home finance situation. You can also visit http://www.scottmillerrealestate.com/ for more information.
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