What should you do if you have negative equity on your property? Though there is no surefire way to reverse negative equity, you do have a few options to lessen your burden. Let’s take a look at some of them now. Every time you make a payment on your home loan, you gain a small amount of equity in your property. Once you fully own your home, you have 100% equity in your property. You can continue to make payments on your loan if you’re comfortable in your home and you can manage your payments. When home values rise again, you can eventually sell or refinance your home once your equity is out of the negative. You may want to consider making permanent home improvements while you make payments. Improvements increase the value of your property and can help you fight against negative equity. Some examples of improvements that you can make to improve your home’s value include: Remember that only permanent improvements count toward your home’s value. Purely aesthetic changes (like painting a wall) and temporary improvements won’t improve your equity. Continue Making Payments
Refinance Your Loan
Are you having trouble making payments on your loan? You might want to refinance. When you refinance, you replace your old mortgage loan with a new loan that has more manageable terms. A refinance can allow you to lower your monthly payment by taking a lower interest rate or by lengthening your term. A refinance won’t improve the value of your home, but it can help you avoid foreclosure while you wait for local home values to rise.
Refinancing a home loan with negative equity is more complicated than a standard refinance. Under most circ*mstances, a lender cannot loan you more money than your home is worth. This means that if your home has negative equity, your lender might require you to bring cash to closing to make up the difference. Unfortunately, most homeowners don’t have thousands of dollars in the bank to pay the lender in a lump sum.
There are a few special programs that you may be able to use to refinance a loan with negative equity. You may be able to use Fannie Mae’s High Loan-To-Value Refinance program if you have a conventional mortgage. A High LTV Refinance can allow you to refinance a loan when you owe more money than your home is worth.
All of the following must be true to qualify for a High LTV Refinance:
- Fannie Mae must own your loan. Check to see if Fannie owns your loan using Fannie Mae’s search feature.
- You must be current on your mortgage payments.
- There must be at least 15 months between the note date of your original mortgage and the note date of your High LTV Refinance.
- The note date of your refinance must be on or after October 1, 2017.
- You must not have refinanced your mortgage with HARP, a now-defunct mortgage relief program.
Freddie Mac’s version of the High LTV Refinance is the Relief Refinance. Like a High LTV Refinance, a Relief Refinance can help you refinance a loan even if you have negative equity.
All of the following must be true to qualify for a Relief Refinance:
- Freddie Mac must own your loan. Use Freddie’s Loan Lookup Tool to find out if Freddie owns your loan.
- You must be current on your mortgage payments.
- Your note date of your refinance must be on or after October 1, 2017.
- You may not have used HARP to refinance your loan in the past.
Do you have an FHA loan? You may be able to refinance with an FHA Streamline. An FHA Streamline Refinance is unique because it skips the standard appraisal requirement. This means that your lender doesn’t need to know how much your home is worth before you can refinance. FHA Streamline refinances also involve less paperwork. You can even skip the credit check and employment verification in some cases.
All of the following must be true to qualify for an FHA Streamline refinance:
- Your loan must already be an FHA loan.
- There must be at least 210 days between when you closed on your FHA loan and the date you close on your Streamline refinance.
- You need to be current on your mortgage loan and you cannot have any missed payments on your record in the last 6 months.
- Your refinance needs to offer a tangible net benefit – in other words, the Streamline must benefit you in some way. This can include a lower interest rate or a lower monthly payment.
Do you have a VA loan? You may qualify for a VA interest rate reduction refinance loan. You can refinance up to 120% of your loan value with a VA IRRRL, which makes it a great choice for homeowners with negative equity.
All of the following must be true to qualify for a VA IRRRL:
- You must already have a VA loan.
- There have been at least 270 days since you closed on your VA loan.
- You’ve made at least 6 consecutive on-time payments.
- You currently live in the home you’re refinancing, and you plan to continue living there.
Contact your lender if you think you qualify for a Relief Refinance, High LTV Refinance, Streamline refinance or VA IRRRL.
Sell Your Home
Negative equity doesn’t technically stop you from selling your property. But remember that mortgage lenders can’t close your loan until you pay off the entire balance of the outstanding loan. This means that if you can’t sell your home for at least enough to cover your current mortgage, you’ll need to pay your lender the rest in cash.
This can be tough, especially if you have a large amount of negative equity. However, if you have reason to believe that property values will continue to decrease in your area, downsizing might be the right choice for you. Consider talking to a Home Loan Expert or another real estate professional before you decide to sell when you have negative equity.
