If you bought a house between 2004 and 2006, chances are you have talked with someone about how far under water you are in your house. If you haven’t lost your job or suffered a decrease in personal income, it isn’t really that big of a deal, you just keep making your house payment and think to yourself “it will come back, I just have to wait out the dip in value.”
I don’t know, and the truth is no one else knows either.
But for those of you who have had some kind of “hiccup” in your income – meaning you make less money now than you did when you bought the house… you have some tough choices to make. I know, because many of you call me asking me what you should do and my only advice is to “pick” one of the choices that are available to you rather than just “let” one of the choices happen to you.
But here are your choices (in a nutshell) of what your options are if you are severely under water in your home (you owe more than 125% of the value of the home) and you have had a hiccup in your income:
- Keep making your payment.
- Attempt to get a loan modification by calling your lender.
- List your house for a “short sale”.
- Negotiate for a deed-in-lieu of Foreclosure with your lender.
- Go through the foreclosure process.
Keep Making Your Payment
The simple fact is that if you find some way to keep making your payment, then nothing will change. True, it may be harder to keep making your payment now than it was before your income was reduced – but as long as you keep making your payment, most likely nothing will change. It is possible that you could get a loan modification if you keep making your payment, but not a 100% for sure thing.
Work With Your Lender For A Loan Modification
Most people are aware of what the term “loan modification” means – and the easiest way to get a loan modification (note: they are not easy to get in my opinion) is to simply call your lender and start the process with them. Be prepared for a loan modification to take months. Most of the time, a loan modification will reduce your interest rate and/or extend the term of your loan (usually from 30 to 40 years) but will not reduce the amount of money that you owe.
Short Sell Your Home
List your home for less than you owe your lender and attract a buyer. Once the buyer submits an offer, the lender must approve the offer – because they will most likely be writing off the difference between what you owe and what they will get from the sale of the home.
Deed In Lieu of Foreclosure
Sometimes your lender will allow you to leave the home in good condition and accept a deed-in-lieu of Foreclosure. The Deed in Lieu is better than foreclosure in my opinion only because once you have a deed-in-lieu negotiated out with the bank, you can get on with trying to repair your credit. With a foreclosure, there will still be negative reporting on your credit until the bank has disposed of the property.
The last resort is foreclosure. The truth is that the best way to prevent foreclosure is to know what your options are and to start at the top of this list and try to get each one done. But in the end, at some point, if you don’t make your payment and you don’t get a loan modification done and you don’t sell your home and if you don’t get a deed-in-lieu of Foreclosure… Foreclosure happens.
And it isn’t the end of the world.
But it is time to start picking up the pieces and start re-building your credit.