There’s nothing worse than realizing that the home you paid (or even overpaid) for is now worth only a fraction of its original value. When you owe more on your mortgage than the market value of your home, you are one of the 10 million U.S. homeowners who are “underwater.”

 

For most homeowners, being underwater is a scary situation. They feel as though they are caught in an undertow of debt and have no idea how they will survive. To make matters worse, there are a number of options that look like lifesavers to the drowning.

 

If you are struggling to pay off a mortgage that is exceeds the current value of your home, don’t fall into the common traps that will leave you even farther from solid financial footing. Here are the five key things to AVOID when your house is underwater:

 

 

1. DON’T think a homeowner’s assistance program will magically solve your problems. Programs like HAMP, HAFA, and HARP all promise to reduce your monthly mortgage payments. However, they offer no relief from the burden of repaying the principal amount of the loan. You still need to repay everything that you borrowed, whether or not you can still sell the house for that amount or not. Having your monthly bills reduced may help you get back on more secure financial ground, but it won’t change the fact that you remain burdened by a house valued at less than what you owe on it.

 

2. DON’T jump at a short sale. Selling your house for less than the value of the mortgage will not restore your damaged credit; it will not necessarily even let you off the hook for the balance that you owe on your mortgage once your bank has received the proceeds from the sale. In some states, the bank can try to collect the difference for up to six years. Finally, you may go through the wrenching emotional decision to sell your home for less than you owe, and then, the bank, which has the final word on whether or not they will accept the short offer, can take so long that the deal will fall apart. You will have turned your life (and probably your family’s) upside down for no apparent good reason.

 

3. DON’T trash your home and abandon it to foreclosure. It may be tempting to take “revenge” on the lender by walking away and leaving them with an undesirable property. This is a huge mistake that despondent and angry homeowners too often make. Leaving a home in foreclosure invites real estate speculators to buy an “as is” house and turn it into a rental property. Such devalued properties bring down the qualities of neighborhoods, reducing the value of nearby homes.

 

4. DON’T ignore the rest of your financial picture. There are real resources you can draw upon to keep your finances stable while you work to save your home without destroying your credit. If you have the stamina and temperament, you can wait out the slow-moving bureaucracy to obtain a loan modification that offers real relief. You can think outside the box, exploring leaseback options, home sharing, or other non-traditional arrangements. Seek reputable counsel to set in place ways to safeguard your credit, manage your daily spending, and secure your future affairs. Most important: educate yourself. The truth right now is that the outlook for the average homeowner is bleak. If someone offers you a deal that seems too good to be true, it most likely is.

 

5. DON’T panic, but stay realistic.  In all of the solutions for getting out from an underwater housing situation, you must force the lender to come to you. You cannot count on parity, equality, good faith—you can’t count on any promises—on the part of the lender. The fact is, you took their money on their terms and now they are entitled to take your money every month, change your interest, take or sell your house. If you are a homeowner in trouble, you need to be smart about your options; that is your only way to maintain the possibility of ever gaining back your piece of the American Dream.

 

 

 

 

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