Nearly one in six homeowners owned more on their home loan compared to the current market value of their property. This has happened because of falling home prices, especially for homeowners who bought at the market peak. Another cause is because they used 125% home loans or the popular schemes of buying a home with no money down. In both cases, the amount they have to borrow for the home purchase is very high, which is why it is easy to end up with negative home equity. However, that does not necessarily mean problems for these homeowners who have underwater mortgages. Except when you are trying to sell the home. Many homeowners with negative equity do not know how to sell off their home and get out of the mortgage, especially when you are facing problems continuing with the monthly payments.
If you owe more on your home than its value and want to sell, you have to consider a short sale. The short sale process involves getting permission from the bank or lender who is responsible for your current loan. This is because they need to take the loss on the difference between your home sale price and whatever money you still owe them but unable to pay. Thus, you can imagine many banks are not willing to allow short sales. Furthermore, if you have both a first and second mortgage, there is nearly zero chances a short sale will be approved since the second mortgage holders will get nothing in return.
Alternatively, you can negotiate with your mortgage lender regarding the terms of the short sale. Many homeowners with negative equity modify their home loan terms so that they can pay lesser every month and they can continue to pay off the mortgage. Most lenders are willing to help with mortgage loan modification or refinancing since they can avoid heavy losses.
Try approaching the Hope Now Alliance, which is a group of corporations working with HUD to help homeowners save their homes from foreclosure. They can help you get a reprieval on monthly mortgage payments, lower your monthly payments until its affordable, increase the duration on your home loan etc. Not that the Hope Now Alliance is not going to pay off your debts and home loans, you still need to pay what ever you owed.
When you are behind your monthly mortgage payments, you are at risk of losing your home to bank foreclosure. Get help with your budgeting on food, utilities, mortgage, transportation, entertainment, social etc and see if you can have more disposable income every month. Contact the HOPE Now Alliance for foreclosure prevention assistance counseling. This beats trying to borrow 500 loans at any interest rate for an emergency.