Selling or Refinancing with Low Equity

If you are looking to sell or refinance, but don’t quite have enough equity, your best bet is to find the right mortgage broker to reveal all your options. Feeling underwater is never good, and all you can think about is breathing. Even though the economy is picking up again, a lot of people were hit by the housing crisis. You, or someone you know could steal be dealing with a home that is underwater.

More than 10% of homeowners in 2014 with a mortgage were regarded as “under-equitied”. This means they have less than 20% equity in their homes.

You cannot say that you’ve thought about running if you currently owe more than it’s worth. Of course there are the 6%-10% fees when you do finally sell your home. You could also end up having to bring some money to the closing depending on how much you owe. This compensates for the lack of equity.

Another option is to have a short sale. However, your lender has to agree to this. Besides getting you away from your mortgage, it will do quite a number on your credit, meaning it will be next to impossible to find another mortgage in the near future.

There is always the possibility of delaying your home sale and working to correct your financial situation. You could even make a profit in the long run, but remember this will not happen overnight.

Ideally, it’s best to take on more than one strategy, and reduce your loan-to-value ratio. Hopefully below 80% in a matter of time. Here are a few ideas to get you started.

  • Contact your lender: Banks generally hold programs in place to help you refinance and make your payments more affordable. Even though it may not be an option to refinance, or a bit too expensive, the bank could have other options as well. This considers your loan-to-value ratio, and if it is above 80% you will be forced to pay for the added expense of mortgage insurance. You should also ask if you would qualify to refinance your loan into two separate loans- a first mortgage and a line of credit. The only way this option would be smart is if the total monthly mortgage payment of the two loans is currently lower than what you are paying.
  • Readjust your budget: Every budget knows its two sides, the income and expenses. One option is to boost your income. Deliver pizzas for a while if that’s what it takes. Trust me you’re not above delivering pizzas. Use this money to add to your monthly mortgage. The other option is to tighten your belt. Eliminate all possible expenses that aren’t absolutely necessary. The leftover money should go directly towards your mortgage. By continually adding more and more each month to your mortgage, hopefully your LTV is low enough you won’t owe any money at closing.
  • Wait: Home prices improve as the economy does. Delaying and sucking it up could buy you some much needed time. All you have to do is hope the economy improves and be patient.
  • Landlord status: One option is to rent your home and let the rent serve as your mortgage. Maybe you could rent out a room of your house, or the basement. If you do choose to rent the entire home, you will have to have the money to live elsewhere.
  • Ask Uncle Sam for help: The government has assistance programs designed to help struggling homeowners. Their qualifications are strict, and end dates can become a factor, but if you can make the cut, don’t wait a moment longer.

The federal Making Home Affordable (HMA) Principal Reduction Alternative works with the lenders to lower the amount you owe, given the borrower meets criteria as well. This program is directed towards homes that were bought before January 1st, 2009. Your loan cannot be more than $729,750 and the monthly mortgage must be more than 31% of your monthly income. The loan also cannot be owned by Fannie Mae or Freddie Mac.

If it is owned by FM & FM you can probably refinance. Again you must have a mortgage before January 1st, 2009, and your LTV must be above 80%. Good payment history also is a huge help. This program will end December 31st, 2015.  


These are just a few ideas to help you deal with your low equity. Best of luck!

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