What to do if your house is underwater

If your home is “underwater” you are not alone. According to recent reports, about 29% of homes today with a mortgage are underwater. Having an underwater home means that you owe more on your mortgage(s) than what the home will bring when you sell it. It can be scary to think your home is underwater and it can definitely leave you in a bad spot financially. But here are some things to remember if your home is underwater.

Don’t panic-It is important to remember that if you are planning to stay in your home for awhile the value of your home really is not that important. The value of your home only matters if you are getting ready to sell your home. So if you are planning to stay in your home for awhile and can afford the payment; relax, you will be fine. Where you can get into trouble is when you panic and make a bad financial mistake simply because you are underwater.

Don’t walk away-A troubling trend has developed in the recent housing downturn of people who have thrown up their hands and walked away from their mortgage because they are underwater. They don’t want to pay their mortgage because it has become an inconvenience to pay on something that they owe more on than its value and they don’t think the value will come back. My advice is to be patient; values are coming back slowly, but they are coming back. In addition, you are going into foreclosure by walking away from your house which will damage your credit and hurt the chances of you qualifying for another home in the future.

Pay off your other debt-A silver lining to being underwater is that it might have actually given you a wake-up call about how you are handling your finances. If so, make it a commitment to first pay off all your other consumer debt, including your student loans and second mortgages. Then save up about 3-6 months’ worth of expenses into an emergency fund. Then you can start paying extra on your mortgage and between doing that and having the housing market recover you will start to have some equity in your home.

If you are underwater in your home it is not the end of the world. Yes, you won’t be able to refinance your loan and if you have to move you will be forced to do a short-sell. But don’t panic and compound your mistake by walking away. Instead use this as an excuse to get your finances under control so that you can weather the storm and make your home ownership experience a blessing and not a curse.

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About Jon White

Giving people hope and seeing them win with their finances is something I have a strong passion for. Because of this passion I started JW’s Financial Coaching in the summer of 2010. Financial coaching has allowed me to combine my passions of finances, teaching, and helping others by helping people get on the right track financially. I'm interested in hearing your story so please do not hesitate to interact with me through social media.
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