Are you currently upside down on your home loan?

On Behalf of | Aug 31, 2023 | Real Estate

Whenever the housing market fluctuates, some property owners find themselves in a difficult position. When prices start to correct after they have risen for some time, the correction can leave some people upside down on their mortgages. An underwater or upside down mortgage occurs when someone owes more than the property is worth if they were to list it for sale on the current market.

People may end up with huge monthly payments and worried about whether they can ever recoup what they’ve invested in their property. Someone who is upside down on their mortgage may have to think about getting out of that situation, which may either involve a mortgage foreclosure or a short sale.

Short sales require a lot of planning

Lenders generally do not like to allow someone to sell a property for less than they invested in its purchase. However, when the alternative is a foreclosure scenario in which the company will likely expend quite a bit of money to regain possession of the property and could potentially lose money on the resulting sale, a short sale may be the preferable solution. It can also be a better solution for the homeowner, as they can control the timing and are less at risk of a sudden loss of their housing.

Short sales have less of a credit impact

A foreclosure is one of the most damaging records that could show up on someone’s credit report. It indicates that they committed to a secured financial instrument and then failed to make payments as required by their contract. A foreclosure can have a long-term impact on someone’s eligibility for home financing or other lines of credit for years after they fall behind. A short sale can potentially also leave blemishes on the credit report, but it will drag down someone’s score less and will be less likely to outright eliminate someone’s eligibility for financing in the future.

Those who can no longer continue making their mortgage payments or who worry about how being upside down on their home financing will affect their future may need to communicate with their lender about the possibility of a short sale. Exploring a short sale as an alternative to foreclosure could help those who bought a property, only to have the home value drop significantly afterward.