If you are looking to sell your home, the good news is that prices are still robust thanks to limited inventories. However, with a sharp increase in interest rates in 2022, you’ll have to think strategically if you need to borrow to buy a new home in the current volatile market.
What Is an Upside Down Mortgage?
If you owe more than your home is worth, you have an underwater mortgage. For example, if you owe $250,000 on your mortgage but the market value of your home is only $200,000, you’re underwater by $50,000, which is negative equity.
The Potempa team has put together these tips on how to navigate this tricky situation and still accomplish your financial goals.
Wait and Pay Down the Principal Before Selling
If you can stay put and pay down your mortgage for a few years, you might be able to rightsize your mortgage faster than you think. After all, the housing market is always in a state of flux. Take a look at your budget and see if there’s any way to cut expenses and put additional money towards the mortgage loan principal.
Ask Someone To Assume the Loan
If you don’t want to wait out the market, you can ask you lender if you have an assumable mortgage. Typically, this means that someone will pay you money to assume your mortgage. The title of the home transfers to the new homeowner. It’s a long shot to try to find a willing party to take over an underwater mortgage. However, with rising interest rates and listing prices, an assumed mortgage might make sense to motivated buyers.
Negotiate a Short Sale
Although short sales impact your credit negatively, you may want to consider this option if you can no longer pay your mortgage. Your lender will ask you to provide proof that you can’t make your mortgage payments. You’ll need to find a real estate agent well-versed in dealing with short sales to help you navigate the process.
Once your home goes on the market, your agent will work on finding a buyer at a price the lender is willing to accept. A successful short sale releases you from the obligation of a monthly mortgage. However, it also damages your credit score.
Refinance Your Mortgage
Work with the banking professionals at Potempa to discuss refinancing options available to you. Although you’ll have to tread carefully in the current mortgage market, you might qualify for a longer-term loan or fixed-rate mortgage refinance that will make your monthly payment more manageable. Make sure you’re dealing with a lender willing to move negative equity over to a new mortgage loan.
At Potempa, we offer mortgage options that may help you put this plan into action. Get a preapproval today. We have seasoned professionals ready to advise you on all your home mortgage needs!