Being a homeowner during a real estate crisis raises a lot of questions. Individuals turn to banks to discover their options and to get answers to their concerns. Questions like, should I sell, buy another property, or refinance my mortgage? Are very common.
Thankfully research and statistics can usually determine when a real estate crisis will occur. As a result, homeowners have the time to prepare for a potential real estate crisis. Sometimes a crisis is the best time for an opportunity!
If you live in an overpriced or seller's market, you can consider selling your home and rent for a few years!
If you are lucky enough to own a home that is part of a seller's market, it is a great time to sell. Homes in big cities like Seattle, San Francisco, and Denver are generally part of a seller's market.
Your home will likely only be on the market for a few days. You will probably receive multiple offers on your home, which will allow you to make some money and possibly sell for more than the asking price. The money that you make on your home sale can be put aside for future endeavors, personal savings, retirement, or a lovely vacation.
Once you sell your home in an overpriced market, you should consider renting a house or an apartment until the market stabilizes. Renting will allow you to save up a lot of money to make a sizeable down payment on your dream home. By putting a lot of money into your down payment, you will be able to get a better mortgage with more favorable interest rates.
If you live in a stable market, you should evaluate your property value to see if you can be underwater.
The majority of Americans remember the 2008 recession when the homes' values decreased significantly, and millions of homeowners were underwater on their mortgages. It is best to prepare for the worst, given our current economic situation due to COVID-19. For those of you who may not know, an underwater mortgage is when your loan's balance is higher than the value of your house. For example, you owe $750,000 on your mortgage, but your home's market value is only $700,000.
How To Determine if You Are Underwater
First, you have to find out how much you owe on your loan by getting a copy of your most recent mortgage statement and a payoff statement. You can also use our handy tool, NestEngage, to track your mortgage if that is provided by your mortgage lender. After you find out how much you owe, you need to determine your home's market value. You can evaluate your home's value by hiring an appraiser, speaking with a local real estate agent, or reviewing prices of homes similar to yours online. Once you have your home's market value, you must subtract that value from your total mortgage debt. If the result is negative, your mortgage is underwater.
What Are Your Options if Your Mortgage Is Underwater?
Stay in Your Home
Choosing to stay in your home and pay it off slowly over the years takes a lot of discipline, time, and planning. The process may involve getting a new job with a higher salary, taking on a side hustle, or cutting down on all non-essential expenses through budgeting.
Some lenders will now allow you to refinance your mortgage if you are underwater. However, due to the housing crisis in 2008, there are special programs available that will enable you to refinance if you meet specific criteria.
Although you will lose money in the process, selling your home is a good idea for those who have savings put aside to pay off the rest of their mortgage loan.
- Sell Through a Short Sale
A short sale is only possible if you cannot afford to pay your monthly mortgage payments. Your mortgage is underwater, and you do not have the savings to pay off your loan if you choose to sell.
In this situation, a lender will take control of your home and quickly sell it to get as much money as possible. Foreclosure is an incredibly stressful process for homeowners. It is best to try and avoid this option.
- Declare Bankruptcy
A last resort option where the homeowner signs a document stating that they will not be making any more payments towards their outstanding debts. This is another very stressful process that will have a large impact on your finances for a long period of time, and, as such, should be avoided if possible.
- Get Help From a Professional
There are several professionals available to help you manage the stress of your mortgage being underwater. They will be able to help you assess your options and choose the best course of action, the earlier you reach out to them, the more they will be able to help.
Discover NestEngage for Homeowners
NestEngage supports mortgage clients and prospects by providing them with valuable financial guidance and insight into their real estate goals, whether the next step is to monitor their existing property or to identify when the right time to renovate, refinance, sell, or buy their next home.