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Mortgage question for SJH, etc.
So the BP post below got me to thinking. Are you considered upside down on your loan if you can make the payments without a problem? DH and I bought within our budget in 2009 (FHA, 5%). When we bought the house it appraised for 10K more than what we paid. I have not had the house reappraised since then but I'm thinking about it (considering refinancing). But I'm almost afraid to find out it's worth in this economy! If our house value has dropped to below what we owe on it, are we technically upside down even though making the payments isn't not a problem? I don't think the value has dropped that much in 3 years, but you never know. If we are somehow upside down, do we just keep making payments and wait for the market to improve until you aren't upside down? My guess is we can't refinance if the house doesn't appraise for more than the loan amount.
Sorry if this sounds stupid. I'm still kind of new to RE. lol.
TIA!
Re: Mortgage question for SJH, etc.
Upside down means you owe more than it's worth. It doesn't matter if you are able to make the payments. Unless you have trouble making payments, yes, you just keep paying and hope the value of the home eventually increases
I'm in the Atl area, and the house I bought in 2006 was worth $80k less than I owed when I started working in downtown Atl with a crazy commute. We were easily able to make the payments, but that is still upside down. We rented the house out and moved closer to the city.
If you bought in 2009, you probably have not seen any significant decrease in value. Also, in an area with great schools like East Cobb, property tends to hold their value better in these areas. So if you are in an area like that, you have even less to worry about.
I consider that to be upside down. Most people who are "upside down" w/r/t autos is because the car is worth less than they owe. So then, they end up rolling over money from the previous auto loan into the new one and so on. It just snowballs.
However, being "upside down" in a house is a lot less serious than a car, especially if you're planning on staying put for a long time. Technically, I'm about $3k upside down in my house. However, that's just the county appraiser (hey, I'm fine with the $4k decrease if they lower my stupid taxes -- not so much when it's the same this year) and the last realtor we had over to tell us if we're moving in the right direction for market said we'll be fine and probably break about even. And our market didn't crash like a lot of the bigger cities on the coasts did. One of the (few) bonuses of being in Kansas!
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Being able to make the payments really isn't part of the equation.
If you owe more on the loan than the house is worth, then you are upside down.
For example. You purchased a home for $200K. You put down 5% so you only financed $190K. You currently owe $180K. Home now appraises for $160K--you are underwater.
Same scenerio, but house appraises for $185K. Since you only owe $180K, you are not underwater (even though the house is worth less than you purchased it for).
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Yes you could be upside down. Upside down means you owe more than whatever is worth - could be a house or auto. Example: You buy a 2012 brand new car for $30,000 and finance it all. You drive off the lot and it's only worth $25,000 now. You are $5,000 underwater- this is why some people buy GAP insurance for cars... to insure them for the full value of the loan.
As far as the other question about refinancing: There are some programs like HARP (I think) that will refinance first mortgages up to a certain (over 100%) of the apprised value. Some of the program names have been: HARP or HAMP or Making Homes Affordable. I don't know many details but google and a call to your mortgage holder should be able to help you.
Ditto.