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August 27, 2009 10:01 AM   Subscribe

What to do about an 'under water' (financially) home?

I knew my home had dropped in value since I bought it, like everyone else's, but when I called the other day to inquire about refinancing, I found out it dropped much further than I thought. It's now worth $10K less than my mortgage. Now I can't sell it without taking a beating.

So, is there anything I can do besides suck it up, keep making mortgage payments, and hope the property value picks back up again? I've heard some vague talk on the radio about stimulus relief programs for people with homes that are "under water" like this. Does that relief mostly come in the form of better refinance rates or is there something else to it?
posted by anonymous to Work & Money (14 answers total) 1 user marked this as a favorite
I've heard some vague talk on the radio about stimulus relief programs for people with homes that are "under water" like this. Does that relief mostly come in the form of better refinance rates or is there something else to it?

Yes, I believe you're talking about Making Home Affordable, which under certain circumstances allows people who are underwater on their mortgage to refinance.
posted by burnmp3s at 10:15 AM on August 27, 2009

It would really, really help to know where you are.

If you're in, say, the Florida panhandle or Arizona or Las Vegas, the value of your home may not recover for a long time, if ever. Those areas were wildly overbuilt in relation to their actual economies, and when the bubble popped, were left with huge amounts of unsold homes.

If you're in, say, suburban NYC, LA, SF, Chicago, for example, the market isn't great right now, but it's expected to recover over the next few years as the economy gets back on its feet.
posted by Oktober at 10:17 AM on August 27, 2009

You can call your state's consumer affairs office to see if there's any help for homeowners in your situation. You can try to get your bank to negotiate on the interest rate. It's worth the effort; if you're successful, it could save a lot.

You've already lost the equity, and it's painful. If you're employed, and can pay your mortgage, remind yourself that this is a terrible economy, many people have lost their jobs or houses, and the loss is manageable. That's how I cope with suckiness.
posted by theora55 at 10:17 AM on August 27, 2009

Your home has lost value, but you haven't lost money. You only lose money when you sell the thing, and you don't have to do that right now. So while you're 'underwater,' that's a somewhat disingenuous notion until you're FORCED to sell the home. Continuing to make mortgage payments isn't "sucking it up," it's actually paying back the money you borrowed. Refinancing home loans isn't a right; it's a privilege.

Your home WILL recover its value. It might take awhile, but there's nothing you can do about that. It's a waiting game. To look at it another way -- if you sold your home and bought another one (in the same or similar market), that other house will probably be equally discounted. What's bad for the seller is good for the buyer, and when you're both seller and buyer, it evens out.

Homes aren't meant to be fungible, easily transferable commodities. They're supposed to be things we buy and stay in for awhile. Stick it out in your home. This lecture is moot if you're forced to sell for one reason or another, be it job loss or transfer or family difficulties or medical bills. If you fall in to that camp, you have my sympathy.
posted by incessant at 10:24 AM on August 27, 2009 [7 favorites]

I called the other day to inquire about refinancing,

Now I can't sell it without taking a beating.

What's your goal here: selling or refinancing? One is needing/wanting to achieve a better rate/withdraw equity money, and the other is getting rid of the house entirely.

We're under water, actually we might be about even now but I went through that whole

When the OMG! freakout creeps up, I remind myself that it's out of my control. We can only worry about things we can control -- paying the mortgage every month, maintaining the property and then... we just hunker down.
posted by jerseygirl at 10:31 AM on August 27, 2009

I'm in negative equity as well - and on a fixed rate mortgage for another 9 months, so I don't even benefit from the ridiculously low interest rates just now....and I don't like it much because I'm feeling stuck here but it's not actually an issue - I'll just have to sit it out.

What does concern me somewhat is that I'll will not be able to get a new fixed rate deal once the current one runs out. Therefore I will be on a variable rate when interest rates go up again and I'll have to pay whatever it may be, maybe more than I do now and that would be pushing it in terms of what I can afford :(
posted by koahiatamadl at 10:42 AM on August 27, 2009

2nding Making Home Affordable. Probably the best program out there - better than anything your lender will be able to offer you.

I work with lenders doing bank-offered loan modification programs and the MHA program on a daily basis.
posted by Cookbooks and Chaos at 11:05 AM on August 27, 2009

I wouldn't worry so much. If the loan terms were affordable/smart at the outset, they're the same way now. As long as you didn't buy the place solely as an investment piece, don't worry so much about it's present value. If you stick with it, much if not all of the value should return.

That said, if you can find a deal under MHA or otherwise where the numbers work out well for you, go ahead and jump on it. (Make sure you get the appropriate legal/financial advice from the pros, of course.)
posted by Citrus at 11:23 AM on August 27, 2009

anonymous: What to do about an 'under water' (financially) home?

Short answer: nothing. If you don't need to sell, you don't need to do anything. The fact that your home is currently at this exact moment in time worth less than you paid for it at a different moment in time is not in and of itself a problem. It only becomes an issue if you need to realise the value existent in the house.

And I say this as someone so far underwater we'd be drowning if we cared.
posted by DarlingBri at 11:48 AM on August 27, 2009 [1 favorite]

Are you positive that it's an accurate appraisal? From my limited (Canadian) experience, banks appraise on the low side if your are applying for a line of credit on your home. Try to work it out from comparable properties in your area.
posted by bonobothegreat at 12:03 PM on August 27, 2009

Personally, if your loan allows for it, I'd concentrate on accelerating payments so that you build up more equity in the home and hopefully cross over into positive equity. It will be easier to absorb the hit over time that way when you can do it at your own pace instead of all at once should you ever be forced into a position where you have to sell it. As a bonus, it will also reduce the amount you pay in interest.

That's what I would do. I'm sure there are others who would suggest maintaining liquidity so that if something happens, you have a larger cash buffer and more flexibility. The right answer will depend on your temperament and the likelihood that you would need extra cash buffers.
posted by willnot at 1:35 PM on August 27, 2009

Seconding bonobothegreat. We're in CA, and had our line of equity cut off when the bank reappraised our home. After some research (not all the way to a professional appraisal, admittedly), we found that the bank had waaaaaay undervalued it.

If you like where you're living, try not to think too much about the amorphous value of the home. Can you manage the mortgage payments for now? If so, try to sit tight.
posted by vickyverky at 1:48 PM on August 27, 2009

You should continue living in your house because your home isn't a stock. You're living in it, you're using it, and property value will eventually pick back up again. Maybe not in ten years, even, but you'll be okay and you'll own a home.
posted by anniecat at 2:17 PM on August 27, 2009

You do realize that the value of a car plummets the moment you drive it off the lot, right? Does that mean you don't buy a car?

As others have said above: keep living in your house. That's why you bought it, right? If you bought the house so you could flip it and make a quick buck, then you got screwed and you deserve it. HOWEVER - I'm doubting you did that. You're probably just a good person who bought a home - A HOME - hoping for the added benefit of making money on your investment. That will take time. So, keep living in your house and wait out the storm.I'm going to say that again because it's important. Things will get better, and eventually, you will see a return on your investment. In the meantime, you have a home to live in. Enjoy it.
posted by 2oh1 at 10:27 PM on August 27, 2009

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