Refinancing an Underwater Home or Condo

Refinancing an Underwater Home or Condo

If you have a home or condo that is worth less than the current loan principal, then you could need some help with refinance options. Many homes and condos now fall into the underwater category because their values dropped substantially when the housing bubble burst. This puts homeowners in a difficult situation. Refinancing, though, can make payments more affordable to help homeowners retain ownership of their properties instead of losing them to foreclosure.

The Advantage of Refinancing an Underwater Home or Condo

Mortgage rates dropped substantially after the housing bubble burst. This presented an excellent opportunity for individuals and families to purchase property with low-interest mortgages. The low interest rates have also made it possible for many people to refinance their homes to save money on monthly mortgage payments.

Many lenders, however, are unwilling to refinance mortgages for clients that don't have at least 20 percent equity in their homes. This makes it more difficult for people with underwater homes to lower their payments.

Is Refinancing an Option for Underwater Homes and Condos?

Refinancing is certainly more difficult for those with underwater homes and condos, but it's not necessarily impossible. There are a variety of options that you should explore to see if you can take advantage of today's low interest rates.

Some families have found that economic pressures caused by the Great Recession have made it imperative for them to refinance. Without lower payments, they might not be able to afford their homes or condos anymore. You might actually be able to use this to your advantage depending on how much you owe on your home and what company owns your mortgage.

Refinancing Assistance for Underwater Property from the Government

The Obama administration recognizes that the housing bubble continues to create economic problems throughout the U.S., so it has included some programs in the stimulus package that might benefit those with underwater homes and condos.

Currently, the stimulus program can only help those with loans that are not above 105 percent the value of their homes. Unfortunately this leaves many people unaided, but the program was designed to focus on families that could regain control of their housing costs and continue to make payments. Anyone who owed more than 105 percent of a house's value simply represents too much of a risk for the government stimulus program to help.

Refinancing an Underwater Home or Condo with your Lender

Some lenders have also recognized that helping their clients refinance can actually save them a lot of money and hassle. Many trustworthy lenders feel that they are in the mortgage business, not the real estate business, so they want their borrowers to find affordable options that allow them to continue making payments. You should, therefore, contact your lender to find out whether they can help you refinance to make payments more affordable (this is when your potential inability to pay can become a bargaining chip in your favor.).

You should know, though, that not all lenders have been as friendly towards clients with underwater properties. They are all too happy to let the clients flounder until they can't afford the payments anymore. Then the lenders simply foreclose on the house, take possession of the property, and sell it to someone else. It's not a very pleasant business practice, but it's one that they are within their legal rights to choose.

(Photo Via: Foreclosure)