Having a negative equity means you owe more on your house than it is worth in the current market. This remains a problem among many Americans. Good to know there are existing refinance options that can provide you a way out of this terrible financial condition.
But first, you need to evaluate the gravity of the situation. This will help you determine whether refinancing is really the better option. Sometimes, a drop in your neighborhood’s home values does not automatically mean you already have a negative equity on your home. Other times, the decline of home values is only temporary and they rise back up without the need for alarm.
To know if refinancing is the best option for your current equity dilemma, it’s best to talk with a professional who can offer you insights on current market trends and possible future estimates. He or she will also walk you through the process and its potential costs.
Speak with your lender
Most of the time, your lenders are willing to negotiate the terms of your loan in order to keep your business. There are various refinance programs available today, but your lender might give you an option that addresses your unique needs.
They may be in the form of a refinance program or a mortgage modification which modifies the terms of the loan to accommodate the change in your situation. Such a modification can include:
- Stretching your loan term
- Lowering your interest rate
- Writing off principal
These might sound too ideal but are not unheard of.
Consider government-insured loans
It might be hard to find conventional lenders who will approve your refinance application. In this case, turn your focus into government-backed refi programs such as FHA’s and VA’s streamline refinance programs. These refi options usually have looser guidelines and can give you the loan you need without verifying your income, assets, or home value. However, you have to prove to the lenders that you have good payment history.
Refinancing under the FHA and VA, however, cannot proceed if the refinance will not result in a better outcome for the borrower. That is the main goal of the refinance. It can be in the form of a lower payment, or a lower interest.
Gear up
Now that you know your options, you can start prepping for the move. There’s work to be done and delaying it might not be a wise option.