The latest media focus has been on upside-down homeowners. This means that they owe more on their home than the home is worth (aka negative equity). It takes something special for this to happen in Austin since we continue to see rising prices, but some homeowners have found themselves in this situation. This is why 0-down mortgages are dangerous and why we are no longer seeing them everywhere.
Reuters is reporting that 1 in 5 American homeowners is upside-down. In the Austin-Roound Rock area, reports have these numbers as high as 12.7%. These are likely sub-prime mortgagors in suburban communities that took advantage of the much less regulated mortgages in the middle of this decade.
How to become upside-down:
- 0% down mortgages
- Home Equity Loans
- Buying in the edge of suburbs that are not yet land-locked (resales in this situation compete with new homes)
To sell a home for less than what you owe, you must bring money to the closing when you sell.
Obama’s plan includes forgiving some of these debts, but could result in higher interest rates as banks lose money on loans.
How to become right-side-up:
- Wait this out if you can and are in a negative equity situation. We are already seeing a rebound in California.
- Pay additional principal on your mortgage. Even $100 extra each month can go a long way to get you ahead on both the principle and interest of your mortgage.
- Use your tax refund to make an extra mortgage payment. Like the option above, this will make a bigger difference than you think if you do this year after year. You can take as much 10 years off of your 30-year mortgage with this tactic. You may not be in the home that long, but this will help you build equity.
- Always avoid $0 down mortgages! Save before you buy and be prepared to put 20% down on a home under $400,000 and as much as 30% down on a home over $400,000. Always be over prepared!
- Buy in areas of town that always appreciate if you plan on moving soon, like central Austin or closer to central Austin. I always recommend buying close to your office because this will save on your commute, gas, etc.
If you are looking for advice on refinancing, selling, remodeling, or on new laws and regulations, get in touch and I will make sure that you get the information you need.
And always avoid foreclosure by seeking expert advice before your missed payment! On average, a foreclosure costs the bank over $200,000. They would rather work with you to find a solution to keep you in the home because it actually saves them money as well! “Sticking it to the man” or just giving up hurts the entire community!
