Almost 3 out of 10 Homeowner Mortgages are Underwater

29% of Homeowner Mortgages are Underwater

Homeowner Mortgages are Underwater

Despite 3 of 10 Homeowner Mortgages are Underwater, You Can Still Sell Your House Without Coming Out of Pocket or Hurting Your Credit

Zillow announced today that 28.6% of homeowner mortgages are underwater nationwide, meaning that the mortgages are higher than the value of the home.   What this means, for example, is that if you took out a mortgage on a home for $120,000 and the home is now worth $100,000, then you would be $20,000 underwater on your mortgage.  If you can afford to make payments, continue to do so as the housing market will eventually correct itself.  However, if you are seeking to sell your house, this scenario can be very costly.

Homeowner Mortgages Are Underwater | Why is this happening?

Homeowner mortgages are underwater because the housing market is losing value due to foreclosures.  When foreclosures occur, they are resold at less than market value.  With so many foreclosures on the market, the average value of homes is dropping.  Until more houses are sold at market price, the housing market will continue to drop.

Unemployment is high.  Officially it is reported around 9%, but the real unemployment rate is around 20%.  People who are unemployed need to cut expenses, and one of the first expenses is the biggest one of all; the mortgage payment.  Traditionally if you needed to sell a house and did so, you could turn a profit.  In today’s economy, you cannot do so.  In fact, due to the fact that so many homeowner mortgages are underwater, many people don’t know how to sell their homes and simply allow their homes to go to foreclosure.  Consider the following example:

Sally Seller was laid off for 3 months but found another job.  However, she is making 33% less than she was before.  Her house is worth $100,000 and her mortgage is $105,000.  She has depleted her savings while unemployed.  Her mortgage is $900 per month but she can find a house to rent for $650.  The problem is that if she sells, she’ll have to come out of pocket approximately $13,000 for all sales commissions, fees, and deficiency.  Sally cannot afford to do this.  Therefore, she lets the house go to auction.

Another reason that the housing market is stagnant is that banks, recognizing dropping housing prices, are hesitant to lend money.  They understand that the likelihood of homeowners ‘strategically’ defaulting on their underwater mortgages are significantly higher in this economy and will not begin lending again until more houses are sold at market price.

In summary, unemployment is causing more people to want to sell their homes, home prices are dropping due to foreclosures causing more ‘underwater’ sellers, banks aren’t lending, and most buyers can’t qualify for loans.  How in the world can a real estate professional help me sell my house?  The best real estate professionals know how to solve problems.

Homeowner Mortgages Are Underwater | The solution

The solution to the housing crisis is to stop real estate transactions from occurring at less than market price.  This means that you should work with real estate professionals who know what to do when homeowner mortgages are underwater.  An educated, knowledgeable, and experienced real estate professional can sell a house with little, no, or negative equity without the seller having to come out of pocket and affecting their credit.  If you are in a tough situation where you have little or no equity and you cannot afford to come out of pocket to pay commissions, you can still sell your house without going to auction.  I have a buyer’s list of several hundreds of people in Austin and San Antonio, Texas, who are looking to buy a house but cannot qualify for traditional bank financing.  A survey down earlier this fall by Trulia, a real estate portal, found that 70 percent of  respondents still consider home ownership the American Dream.

I know how and have the experience in putting together ‘unsellable’ homes with ‘unloanable’ buyers where a real estate transaction that otherwise may have resulted in a foreclosure occurs at market price where everyone wins.  Contact me today for more information.

Image: renjith krishnan / FreeDigitalPhotos.net

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