You may be stuck with an upside down mortgage if you purchased your home during the housing boom between 2004 and 2006. In this situation, you essentially owe more money on your home than you could ever hope to gain by selling it. It's a hopeless feeling knowing that you owe more on your dream home than it's worth; however, there are some steps you can take to ease the problem.
If you find yourself with an upside down home mortgage, you have a few options that might let you keep your home. The decision won't be an easy one, but you should decide on a course of action that best fits your circumstances.
Make Your Payments: If you can continue to stay afloat, this option may make the most sense for you. While home prices may never reach the inflated margins they did between 2004 and 2006, staying in your home is always the best option. Continue to make your payments as if nothing has changed. Staying in your home helps preserve your credit, and you can likely refinance your home mortgage once the housing crisis improves.
Rent or Lease: The major concern with leasing your home is the abnormal wear and tear that most rental properties undergo. However, depending on your location, you may be able to demand rent that approaches or surpasses your upside down mortgage payment, leaving you free to devote the money you normally spent on mortgage payments to improving the equity situation in your home. This may move you more quickly out of an upside down mortgage situation, but this option may not be for everyone.
Talk to Your Lender: Now may be a perfect time to renegotiate your home mortgage terms with your bank if your home has not yet depreciated too much. Keep in mind that your lender doesn't really want your home any more than you want to lose it. With thousands of foreclosed homes on the market, your lender may want to make every effort to help you keep your home, or they'll face an even bigger loss.
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