Q: I read your Real Estate Matters column on a regular basis with great interest. I have concerns about my current mortgage which is significantly higher than what my townhome is now worth. I purchased it in mid 2006. It appears I am not eligible to refinance or get a modification due to the upside-down status of my loan.
So far I have managed to keep my payments current. Is there anything else in the administration’s programs that might help me? Ideally, I would love to sell my townhome and purchase something much less expensive with a lower interest rate, but it will probably be years before I can get a decent price.
How can I put myself into a more affordable home without just walking away and damaging my excellent credit? Thank you for your response.
A: Unfortunately, you bought at the high point in the market and home values have plunged since then. Depending on where you live, and how many foreclosures are in your neighborhood, your townhome might be worth 30 to 60 percent less than when you bought it. If you’re in a place where the real estate market hasn’t declined by that much, great.
But if your home has gone down in value quite a bit, then you may not qualify to refinance your home, since refinancing is limited to those loans owned or serviced by Fannie Mae and Freddie Mac and are no more than 105 percent of the value of the property.
If your circumstances have changed and you now are facing a hardship you’re your payments, you may be able to qualify for a loan modification with your lender. While there are quite a number of rules, some still being worked out, you may qualify for help. You should call your lender, go over your financial situation and see if you qualify for a loan modification.
If you don’t qualify for a conventional loan modification or President Obama’s loan modification plan – which is in the process of being worked on by the regulators and the banks, then your only option is to try to sell the home and move on. To find out whether you qualify under President Obama’s plan, go to MakingHomeAffordable.gov.
While I’m sure you’d love to sell, you’d have to do a short sale. That means you’d have to get your lender to agree to take whatever you can get for the property and wipe away the remaining mortgage amount. You’d walk away with nothing from the sale. And for now you won’t have to pay any federal income taxes on that portion of the loan that your lender forgives as part of the short sale if the home was your primary residence.
The problem with this option is if you have other assets or other income, the lender may not approve the short sale if it believes that you have the financial means to pay off the loan.
Short sales will damage your credit, as will foreclosures or doing a deed-in-lieu of foreclosure. In fact, anything other than a clean sale will do nothing to help your credit, will likely damage your credit score, and may prevent you from buying another home for the next two to five years. For credit purposes, a short sale may look better to another lender in the future while a foreclosure or bankruptcy may not.
If you’re in danger of not making your mortgage payment, you can see if you’re eligible for a loan modification through the Homeownership Preservation Foundation’s Hope Hotline: 888-995-HOPE. You can also go to their website, www.995hope.org. One of their partner organizations is the federally-sponsored Hope Now Alliance, which includes housing counselors mortgage companies, mortgage insurance companies, Fannie Mae, Freddie Mac, real estate trade organizations and others involved with helping homeowners stay in their homes.
April 24, 2009
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