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Negative Equity Forever?
We bought a home in 2006 and have first and second loans worth $225,000. The property is now worth $145,000. There are no programs of which we are aware that will help bring our mortgage in line with the actual value of this home. We are employed, current on all our bills and have credit scores of near 800. The question we have is: How long do we continue to pay for negative equity knowing we stand a chance of losing the house at some point in the future?
For decades the purchase of a home was seen as a long-term investment where slow growth plus loan amortization would eventually result in a mortgage-free property with substantial equity. You bought at or near the top of the market and now want to leave after six years.
Let’s look at some issues.
Can you rent the property for enough to cover your payments? If yes, you could then move to a less expensive property. As a rental, the property also would generate depreciation and other tax breaks not available to you as an owner-occupant.
Do you qualify for any assistance, compensation or a principal reduction under the robo-signing settlement signed in February by 49 states and several major loan servicers? What about the separate agreement to protect military households from wrongful foreclosure claims?
Have you checked the latest changes under the government’s Making Home Affordable program? If your loan is owned by Fannie Mae or Freddie Mac you may qualify for a new loan even if more than 125-percent upside down.
If you walk away where do you go? Are you prepared for the costs of foreclosure, bankruptcy and a lower living standard?
Lastly, you already see rising values in some metro markets but certainly not all. What if you walk away, go bankrupt, can’t buy elsewhere and values go up? As they say on Wall Street, past performance does not guarantee future results.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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