Is Your House Worth Less Than Your Mortgage?

Unfortunately, hundreds of thousands of homeowners are realizing this fact in today’s slumping housing market. This is mostly a result of either a “no money down” home purchase or tapping into your home’s equity with some form of 100% financing. The worst scenarios for home owners are those situations where there is a looming ARM adjustment in a year to three years where the homeowner had planned to refinance or sell before mortgage interest rates adjust higher.

So what’s a homeowner to do? The good news is there are a number of things that can be done. The first part is related to refinancing and the second is related to improving on your home itself house worth.

Refinancing Options
If you originally got a high interest rate mortgage due to poor credit, start by fixing your credit today! Typically the sad truth is: the higher your credit score, the lower your interest rate! Push yourself to pay off your debt and make sure you keep paying ALL of your payments on time. Even paying your cable bill late can often hurt your credit! Lowering your debt-to-income ratio is one of the quickest ways to boost your credit score.

If your current mortgage is a stated income or sub-prime mortgage due to income that is difficult to document, you need to talk with your accountant or tax professional. Remember, you are paying a higher interest rate for as much as 40 years. Work with your accountant and mortgage professional to analyze the situation. Your goal is to have enough documented income to qualify for a conforming mortgage, which will have a lower interest rate throughout the life of the loan.

Once you have increased your documented income, search around to find a lender who can offer you the best deal. With our diverse lender network, we do all the hard work of searching to find you up to 4 lenders who can offer you a great deal.

Home Related Improvements

Get an accurate appraisal, even if you need to have a new one done. Pay close attention to negative adjustments between your home and comparable homes. It will give you a baseline starting point on what modifications you should make to improve your home’s value. While many people are hesitant to put extra money into their home, new windows, a new kitchen, or even a new roof can significantly increase your home’s value and can provide a significant return on your investment. Don’t hesitate to pick up the phone and ask your appraiser what they suggest you should improve.

Putting a few thousands dollars into your home can often boost your home’s value enough so that your loan-to-value ratio (your mortgage amount over your home’s value) is within the acceptable range for most lenders (typically 90% or below, especially in the current mortgage market). While you might a few thousand dollars out of pocket up front, if you can save $50, $100, or more off your monthly payment, you can make that return back in no time.

Much of the work should be done by you as homeowner, if possible. If you can do the work yourself or know a friend or family member who will do the work for you for minimal costs, it can mean huge savings in your investment and will greatly increase your return on your home improvements. If you use contractors, only use them for critical building code items like electrical, structural and some plumbing, otherwise you could make your situation worse by overpaying for these improvements.

Consult a Realtor about what buyers are looking for in your neighborhood, but make sure you don’t overdo it. It’s extremely hard to make a return on $10,000 dollars worth of granite counter tops in many locations, so make sure you don’t overspend if it’s not going to help you in the long run.

You should carefully weight the savings you can earn by refinancing against the possible costs or penalties. Any homeowner can refinance their mortgage; the key is to weight your options to determine if refinancing is the best option for your situation.

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