Top 6 Tips For Young Homeowners Underwater.

young and underwaterAmazing!! Looks like the American Dream of a beautiful home with a white picket fence isn’t working out too well for almost half of the younger (under 40) homeowners.

Yes, 48% of homeowners under 40 now find they are underwater on their mortgage.  They now face the dilemna of what to do when they owe more on their mortgage than their home is currently worth.

Here is a breakdown of the problem 6 tips that the young and underwater, first-time homeowners, struggling for air have.

There are 15.3 million Americans who owe more on their mortgages than their homes are worth, according to the latest report on negative equity by Zillow.com, a listing service for foreclosed properties. Nearly 31 percent of people with mortgages are underwater.

That burden does not fall evenly on people of all age groups. Among homeowners between the ages of 30 and 34, just over half are underwater, Zillow found. Nearly half — 48 percent — of all homeowners under the age of 40 are underwater, according to the report…

“(Y)oung homeowners continue to be disproportionately affected by negative equity,” Dr. Stan Humphries, Zillow’s chief economist, said in a press release. “Negative equity is trapping young people in their homes, preventing them from selling.”…

“A lot of people my age bought houses between 2000 and 2005 to participate in what seemed to be a rapidly rising real estate market,” Vohwinkle says. Now, “it is pretty common when you sit down and look at peoples’ situations” to find that their house is underwater.

Of course, having an underwater mortgage isn’t necessarily so bad, as long as the homeowner can afford the monthly payments and has no plans to move, Tilp points out.

“I have other clients who can afford the payments, their job situations look pretty good, they want to stay in the area, and they’re reasonably happy with the house,” says Tilp. “So I advise them to think about staying where they’re at.”

Of course, one’s mortgage does not exist in isolation. There are many other factors to consider when deciding whether to keep an underwater home, such as one’s income, student loan and credit card debts. Selling might make great sense for Shiva, but terrible sense for her neighbor.

“First and foremost is to step back from the immediate agony of the situation and think about how it fits within the larger picture of your life,” Tilp says, “What we have to do is look at each sit individually.”

And then there’s the broader economy to consider, including the direction of home prices and the economy in one’s community.

“It depends to a large extent on where they are in the country, and how long it will take the market to recover,” says Gerri Detweiler, Credit.com’s consumer credit expert.

Here are some tips for people who find their homes underwater:

Consider the Big Picture. Sure, owing more than your house is worth is a drag. And as long as you do, “You’re essentially paying rent,” Detweiler says, since you’re not building up equity. But consider all the other factors. Are you only a little underwater? What about your income and other debts? If you plan to stay put for a few years, being underwater now might not matter so much.

Refinance. Even though banks have tightened lending requirements since the housing boom, some lenders are beginning to offer refinance and mortgage modification options, Vohwinkle says. You may also be eligible for the federal Home Affordable Modification Program. “Its not easy” to fill out all the forms and manage all the paperwork, says Vohwinkle. “But if you really sit down and try, there is help out there.”

Rent it Out. Rather than selling, see if renting will allow you to keep the house, and all your invested equity. “You may not recoup every penny for the mortgage,” Vohwinkle says, “but even if you get 50 percent of the mortgage from rent, that’s a lot better than taking a huge loss.”

Short Sale or Foreclosure. A short sale might leave you with less money to repay the bank; a foreclosure might give you more time to live in the house rent-free before the court legal system catches up. Either way, you may be able to get out of paying high mortgage payments. And either way, your credit score will get decimated. “If it’s a short sale or a foreclosure, you don’t really have a good option,” Vowhickle says.

If you sell your house for less than the mortgage amount, you may owe the remainder, which banks call the “deficiency,” Detweiler says. Be sure to bring this up in negotiations with your bank. Also, any forgiven loan amount will be treated as extra income by the IRS, and taxed appropriately. Make sure you know what that amount will be beforehand….More at Young and Underwater: First-Time Homeowners Struggle for Air

As you can see this is truly a quagmire for the young and underwater.  However, there are options.

One option to also consider are government backed loan modification programs.  Just a note, be very cautious and do your full due diligence if you look to take advantage of this option.  There are a lot of very good programs out there along with a lot of less-than ethical practitioners in this area.

Image: FreeDigitalPhotos.net

 

About Anthony Candella

Anthony is the founder and Directing Attorney of YourCreditAttorney.com and has been helping consumers just like you understand and improve your credit and financial situation since 2003.