Short Selling On Underwater Mortgages–Homeowners Who Default On Home Loan May Be Worse Off

An article on has brought to light something that many homeowners with an underwater mortgage might not have considered. Homeowners who strategically default and walk away from an underwater mortgage often feel that they are left with no other option, but doing this may cause homeowners to do such damage to their credit that they might be unable to buy a home again for close to a decade.

Short selling an underwater home has become more of a viable option for those who are struggling to deal with a mortgage on which they owe more money than the home is actually worth. Any homeowner in this situation is obviously and understandably frustrated with their mortgage predicament.

However, it might be in a homeowner’s best interest to consider refinancing for a lower more affordable rate, through the Home Affordable Refinance Program, if they are having trouble paying on their underwater mortgage and simply want to keep their home so they can have a roof over their heads.

Other homeowners who view their house as an investment and are frustrated with the loss in value may fare better if they short sale their home, which would require them working with their lenders. Some problems have arisen when it comes to short selling homes because second mortgage holders may be unwilling to allow a homeowner to do so.

There have been incentives from the Obama Administration that are compensating primary and secondary mortgage holders if they allow a short sale to go through. Short sales may be more of an option for homeowners who want to be rid of an underwater mortgage and it may be in a homeowner’s best interest to take this route rather than strategically defaulting on their home loan.