Get A Negative Home Equity Loan

What do we do? Where do we go from here? We can’t pay. We can’t refinance, We can’t sell!

With the economy on the fringe, jobless rates rising, and house values falling, many financially over-extended homeowners find themselves around the kitchen table, creatively pulling assets from anywhere they can, just to make ends meet. Homeowners that chose low teaser rates find their ARM (adjustable rate mortgage) substantially increased. Those having other circumstances such as divorce, medical bills, or other forced situations may also find themselves in limbo, unable to pay, refinance, or sell their home to financially help themselves. Still others might currently be alright, but to stay that way, they feel they need to down size. Even those able to upgrade find themselves in negotiations in a depressed market. Many are looking at negative home equity. Many are also looking at foreclosure.

Negative equity is a cruel reality when your home suddenly loses its market value in a volatile real estate climate, and the balance of your mortgage becomes higher than the value of your home, or for what you can feasibly sell it. You’ve always been told that your home is your very best asset. Now you find you cannot use it to help pay back other debt that’s looming, nor can you refinance it due to its declining value, or employment or credit problems. If possible, wait out the market, until home values increase again.

But what if you can’t wait? How do you refinance or sell your debt with negative equity?

Few lenders will refinance your home if it has negative equity. The days of zero equity lending are blips on the real estate screen. With good credit, some lenders may make loans on terms that refinance the first mortgage and then tack on a new home equity loan. Others may negotiate more affordable interest rates due to your current situation, but only until the market recovers and property values begin to rebound.

Do understand, that lenders do not like foreclosures any more than those foreclosed upon! Too many foreclosures, in addition to their other unsold properties, create such an inventory that, to sell homes quickly, prices must be reduced – sometimes as much as 20%. In turn, these reduced homes cheapen properties in surrounding neighborhoods.

Obviously the best way to avoid being a victim of negative equity is to lock in a fixed-rate loan, rather than be tempted to buy more home than you can afford, and/or accept a teaser rate you know will eventually increase, regardless of good or bad market and economic circumstances in a few years.

Also make it a habit to keep a buffer, or cushion, between what your home is worth, and the equity you wish to use, or borrow against. It is not advisable to borrow against your entire equity, but rather keep a 20% buffer in case property values do decline.

Finally, watch your debt. High debt-to-income ratios prevent you from getting the best interest rate on your loans.