Underwater Home

Underwater Home

underwater home

“Underwater Home” may not mean what you think. According to CoreLogic 10.8% of all mortgage homes in the US are underwater, that is, more is owed on the home than it is worth. For Arizona that number is larger. 18.7% of Arizona homes are underwater with the Greater Phoenix area showing 18.8% of mortgaged homes are underwater. Does it end there? No.

If you owed $100,000 on a home worth $100,000 you might believe you are break even and no longer underwater, however you would be wrong. The only times that it matters whether you are underwater is either when you sell your home, or you attempt to refinance. Otherwise, what difference does it make? The amount owed against a home is merely a number only. It should not create stress or a reaction unless it is time to make a decision.

Refinancing Your Home

What if you need to refinance your home? This is where it gets even trickier. With new appraisal and lending rules getting refinanced becomes a challenge. First, most people cannot afford to pay their closing costs out of pocket and need to finance them into the home. This number needs to be added to the Payoff of the existing mortgage. Then you have to look at the LTV i.e. Loan To Value guidelines for that refinance. If the mortgage program that you are looking at sets a maximum loan to value (LTV) of 90%, then it means that the new loan, including closing costs, cannot exceed 90% of the home’s appraised value. It is clear from industry experts, that appraisals for refinances come in at a lower value than an appraisal for the sale of a home. This means that someone that owes $80,000 on a home that appraised for $100,000 may still be underwater. If you cannot make that current payment on your home, then it means discussing a short sale or loan modification to avoid foreclosure.

Loan Modification

If you can’t refinance your home, but desire to keep it, then a loan modification becomes your only alternative. Loan modifications are still very difficult to get done in a quick fashion. Homeowners are seeing turn times on loan modifications taking up to 6 months to complete. Is this going to be enough time meet your goals?

Selling Your Home.

Selling an underwater home means doing a short sale. But, the realization of an underwater home is not if you owe more than the home is worth. The analysis starts with what are the proceeds. If  you sell your home today, what would be the sales price? A Zillow value is not going to get you there. You need a good real estate agent that can do that analysis. This is a great website to shop home values and get an agent to help you determine that value. Once you get the value, your agent needs to calculate your net proceeds from sale. This is where the magic number comes in and determines if you have an underwater home or not. You see. A home worth $110,000 and with only $100,000 in mortgages against it, is still an underwater home.

Why does it matter?

So, in this era of economic recovery, why are we discussing an underwater home? This is going to be an interesting year. There are Billions in mortgage loans that come due in 2015 and 2016. These loans may have been 5/1 ARM loans which were interest only but due to the adjustment in rates and the expiration of interest only periods, the Principal Interest Taxes and Insurance (PITI) payment is shooting through the roof. Many exotic adjustable rate loans also have a recast feature. This feature requires that an analysis be done every 5 years so that the amortization of the loan is calculated to payoff within the original term. This means that many of these loans are now seeing payments double. In addition, there were many Interest Only Home Equity Lines of Credit, which are now the end of a 10yr interest only period and now become either 15 or 20 year payoff terms. This could drive a $100,000 LOC to an $800 a month payment from what may have been a $300 a month payment before.

You may have kept your job through the recession. You may have gained new employment during the recession. Some people may have had to take furloughs or pay cuts. Bottom line, how many homeowners can afford massive increases in their payments? With all of the recovery, many homes are still underwater homes.

If you are facing one of the situations above, you have questions. We have answers. Please contact our office to schedule a no cost appointment today

About Kevin Hardin

Kevin W. Hardin is a 22 year veteran of the Mortgage and Real Estate industries. He holds a Juris Doctor (JD) degree from Concord Law School and a CMB (Certified Mortgage Banker) from the Mortgage Bankers Association. He is a Senior Loan Officer at HomeStreet Bank. He works with Borrowers, Attorneys, Title Companies, Real Estate Agents and Mortgage Companies on mortgage law issues.


  1. G-Unit Varrato II says:

    We are the number one short sale real estate team in Arizona for Cokdwell banker. We’re here to help.


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