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What Can I Do With an Underwater Home?

The following post is from Madison of My Dollar Plan and Kids and Money at

Source: Casey Serin

If you’re one of the 11.1 million homeowners who have an underwater mortgage, you may be wondering if you have any options other than foreclosure.

With 23.1% of all mortgages underwater, you’re not alone.

For decades, homeowners purchased a home not only because it was necessary but also because it was an investment. As the housing bubble hit its peak in the early part of the 21st century, real estate as an investment was the source of large profits for investors.

But now, all of that has changed.

Investors as well as homeowners are stuck in homes that they would like to sell but cannot. What can you do if you’re one of those homeowners with an underwater mortgage?

New Legislation

The new 2011 stimulus bill laid out by president Obama includes an initiative to work with lenders to refinance homes at a much lower rate even if the owners have damaged credit or the home is underwater. This could drastically reduce the payment on the home giving homeowners the ability to become current with mortgage payments.

Help may not be so close, say some mortgage lending analysts. Even with Fannie and Freddie being government sponsored institutions, it will be difficult to convince them to write down so many loans, although it may save them money by not having to foreclose on the homes.

To find out if you are eligible, answer the quiz questions on the government website.

Don’t Move

Sure, it seems obvious, but before accepting that new job, think about the costs of moving. If you have an underwater mortgage, the only way to sell it may be through a short sale and that may leave you with further expenses and damaged credit. Is the new job drastically better than your current job?

If you’re unemployed, do you have the financial reserves to make a move and downsize? Although bankruptcies are becoming more common, avoiding it if possible is probably going to be the best choice for you and your family in the long run. Staying in your current job or taking a less attractive local job may be the better choice right now. Be sure to look at all the costs of every option available.

Rent it out

If you have to move, consider renting your home until the market becomes more favorable. Even if you only break even or still have to pay a portion of the mortgage, it’s could be better than short selling or foreclosing.

But beware, there are drawbacks to being a landlord. You need funds ready to make repairs if the tenants or property management company calls. There is also no guarantee that your house will be any less underwater a decade from now but remember, if the real estate market truly is close to bottoming out, with each mortgage payment you make, you’re a little less underwater and by renting, the bulk of the payment is coming from them instead of you.

Look at the rest of your budget

When all else fails, statistics show that even those who are unemployed, underemployed, or have seen a drastic drop in income still try to live with a similar standard of living that they once had. Even if you are on a fixed income like social security, you’ll probably still want to find other areas to cut expenses. An HD antenna could increase the money you retain by more than $100 per month. Clipping coupons and eating only at home can save the average consumer another $100 or more. What else is in your budget that could be cut?

Studies have shown that although people think they’re doing a good job of cutting expenses, there is still a lot of money to be saved in most peoples’ budgets. Take a second look.

Bottom Line

Underwater mortgages are a problem for one out of every five homeowners, and there aren’t any easy options for you. Sometimes all that’s left is to get creative with solutions.

Are you underwater on your house? What are you doing to handle the decrease in the value of your house?

Madison DuPaix is a mom to three young children with a background in finance and insurance. She loves retirement planning and taxes, and recently started her own tax business. Madison is the author of My Dollar Plan and is the guide to Kids and Money at