Whether you’re already in an underwater mortgage predicament or you think you’re heading toward one, it’s easy to feel helpless. Unfortunately, it’s common for people to owe more on their home loans than the property’s value.
Unexpected circumstances, including fluctuations in the real estate market, can result in you desperately trying to avoid foreclosure.
Luckily, you have a few options for selling your New York house underwater (also called “upside-down”). Learn the ins and outs of underwater mortgages and determine the best course of action for your situation.
Can You Sell a House That’s Underwater in New York?
Over the last two years, the dramatic economic downturn has resulted in homeowners from all walks of life facing foreclosure. As home values plummeted, many New Yorkers found themselves with an underwater mortgage. Suddenly, the loan you’re paying is higher than the current value of your home.
While you can sell your house underwater in New York, there are only two potential ways to go about it.
- Cover the Difference
- Short Sale
1. Covering the Difference
If you have cash on hand to cover the cost difference, the first option is to sell your house and use the savings to pay what you owe on the loan balance. There are two crucial issues with this option. One, you will lose a large amount of money.
Second, to sell in the first place, you must have enough cash to cover the difference in what you owe and what the house is currently worth, and any closing costs.
2. Short Sale
The second option is to sell via a short sale. That implies that you convince your lender to sell your house at a lesser price than the one you agreed to pay. Because the lender loses money this way, it’s typically a last resort. However, it can be done, as we’ll explain soon.
What You Need to Know About Selling a House That’s Underwater
The first thing to do in an underwater situation is to determine exactly what you owe. You can do this by reviewing your last mortgage statements or consulting your servicer.
When you know the amount you owe, calculate how much your home is now worth. You can accomplish this in a few ways, but it’s best to get expert help. For a ballpark estimate, you can ask an experienced real estate agent or realtor in your area about the market value. You may have to hire an appraiser for help to get a more exact number.
Then calculate how much you’re underwater by subtracting the current worth amount from the amount you owe.
It is crucial to consider the timing. Most borrowers don’t know that you should call your loan servicer before missing a payment. Keep in mind that the bank servicing your loan isn’t in charge. The lender is.
Thus, you must make a deal early so that the servicer can get approval from the lender. Ultimately, the lender is who has the final say in how you walk away. The earlier you call to plead your case, the better.
Remember that if you don’t have enough cash on hand and you’re determined to sell, your goal should be to arrange a short sale.
Before you contact your lender, be prepared with a letter of hardship. In it, you should outline exactly why you can’t afford your mortgage and make your situation clear. Selling a house after filing chapter 7 bankruptcy is still possible with the right buyer.
Tips For Selling a House Underwater in New York
Once you’ve assessed your house’s value and that of your area, calculate whether you can afford the loss of selling. Often, choosing to stay in your home until the value goes up may be a valid option if you can afford it.
However, if you’ve decided you need to sell your New York home and don’t have the cash to spare, consider a short sale. How to sell your house underwater will depend on your specific situation. You can still find home buyers even in an underwater housing market.
The Strategic Short Sale
For a short sale transaction, you will need to get your lender’s approval after you turn in a letter of hardship. The two most commonly accepted hardship reasons are losing your previous income and job relocation. If your mortgage loan debt has risen higher than your income, you stand a good chance of receiving approval.
Short Sale Transactions – A Misnomer
Short sale transactions don’t live up to their name. They’re typically lengthy and can last anywhere from several months to years. However, some buyers are happy to seek these deals out because they receive a discount on their investment.
When your letter of hardship has been accepted, you must provide a market analysis. In addition, provide information on a lien if your home has one. A lien is an interest or a charge against your property that the lender takes as security to satisfy the debt. Contacting a lien attorney is advisable in this case.
The next step is to create your property listing. You must tell your lender about any offers you receive for their approval. This is a challenging part of the process that may take several weeks or months. If you took out a second mortgage, the process may take even longer because it requires both parties to agree to the terms.
You should know that after closing a short sale, your credit score will drop between 75 and 200 points. However, this is far better than the score a foreclosure would give you (typically a loss of 200 to 300 points).
When you miss monthly mortgage payments, you can easily end up underwater (the rule of thumb is missing three). Most of your monthly mortgage payments at the beginning are only to lower interest rates. If you’re struggling with personal finance, however, the interest accumulates.
Underwater homeowners are often stuck with negative equity. Your house is now worthless and you will lose the money you invested, including the down payment. It’s an unfortunate situation. However, accessing the right tools to sell your home may provide a great solution.
Transferring Deed in Lieu to Avoid Foreclosure
Another way to avoid foreclosure is through a deed in lieu of a foreclosure agreement. A deed in lieu (also a lieu deed) is a document that transfers your home’s title from you to the mortgage lender. Your lender will take the property back.
Because the lender becomes the owner of the property in lieu deed, it may be an appealing option for them. By taking back the property title, the lender will control any improvements that increase its value and essentially treat it as an investment.
One of the biggest advantages for you as a borrower is that a lieu deed will release you of all liability. Another advantage is that you will avoid the time-consuming process of a sale while saving money. Last, you will avoid any unwanted exposure or publicity.
Keep in mind that the conveyance of lieu deed is taxable, so that may be a disadvantage to consider.
Refinancing Your Mortgage
You won’t have access to traditional refinancing options with an underwater mortgage. You would need 20% of equity for most lenders to allow it. That said, you may be eligible for HARP, a different refinance program.
Under the HARP program, you might refinance your home if you meet certain criteria:
- Your mortgage payments over the last six months have been on time
- You made a maximum of one late payment in the past year
- Your loan has less than 20% equity and was initiated before May 31, 2009
Other federal financial help programs include Fannie Mae and Freddie Mac. The program, created by congress, purchases your mortgage from your lender. The program then either turns the mortgage into a mortgage-backed security (MBS) or holds it in a portfolio. MBS may be especially appealing to a secondary mortgage investor.
How To Sell a House Underwater in New York
To sell your underwater home, you will need to ensure you have enough cash to make up the difference in what you owe and the value of your property. As long as you understand you will lose money, this may still be a good option if your situation is dire.
If You’re truly drowning and cannot afford your monthly payment, your best bet for selling the house is a short sale. When you’re desperately in debt, you may qualify for a short sale. Your lender will determine the sale price and value of the home.
The terms of the sale are negotiable but still subject to your lender’s approval. While a short sale isn’t ideal, it’s preferable to foreclosure. Your credit report will suffer considerably less.
To sell your house as quickly as possible and to find cheap ways to sell a house, finding reliable cash buyers is key.
Regardless of how you ended up underwater, it may feel like your world is crumbling. However, by carefully evaluating your options and seeking sound expertise, you can find the best solution for you.
Whether you’re seeking a loan modification, repayment options, or making the easiest sale possible, help is available. We buy houses New York buyers might overlook.