What to Do If You're Still Underwater on Your Mortgage

Deciding how much mortgage you can afford can have some major consequences if it turns out you were wrong. If your mortgage bills are piling up faster than you can pay them and your house isn’t worth what you owe, you may be thinking of scary scenarios like losing your home through foreclosure, or a plunging credit score. You are not alone; according to RealtyTrac, 15% of homes with a mortgage are underwater. Don’t be overwhelmed — it is time to take action. Below are some options if you are still underwater on your mortgage.

1. Modify or Refinance Your Loan

If you are struggling to make payments, you should first talk with your bank or mortgage company about modifying your loan’s terms or determining if it makes sense to refinance your loan. If you can get better terms, like a longer loan or lower rates, you may be able to keep your home and bargain for payments you can afford. You may not be eligible for a regular refinance, but you can also look into the government’s Home Affordable Refinance Program, or HARP. Keep in mind that a refinance will depend on your credit score as well. If your credit is bad, a refinance may not make much of a difference on reducing your monthly payments. You can check your credit scores for free on Credit.com.

2. Rent It Out

If you are able to find an alternative affordable living situation, you can always rent your home to help with mortgage payments. This is an especially good tactic if you can charge the same amount or more rent than your monthly mortgage payments. If being a landlord is too complicated a task to take on, consider using a property management company for help with the lease and any small needs.

3. Try a Short Sale

If you are facing foreclosure, you may consider a short sale, where you sell your home for less than the amount owed on your mortgage and the bank absorbs the loss. It can negatively affect your credit score and can be complicated, but might be your only option. It’s a good idea to keep this option as your last resort.

4. Deed-in-Lieu of Foreclosure

Although this option requires losing your home, you will avoid the foreclosure process. With a deed-in-lieu of foreclosure, you voluntarily transfer the home’s title to your lender. You will still see a large, negative credit score impact as well.

It can be stressful and disheartening to learn that you can no longer afford your mortgage payments, but if you want to avoid bankruptcy and foreclosure, it’s important to take action before it becomes truly dire. It may not be easy, but these options can help you bounce back from your financial troubles. If you can wait it out, you can always ride the market rebound until your home value matches your mortgage once again.