Numerous homeowners in the Indianapolis real estate market and across the country are finding themselves upside-down on their homes, meaning they owe more than their home is worth in today’s market. Statistics even show that as many as 15 million people across the country are in this “underwater” situation.
Many owners listing their Indianapolis homes for sale are in a similar situation. Experts are concerned about the future fall out of so many underwater homeowners being in this kind of financial trouble. Not only does this leave Americans in a financial bind with their homes but also puts them in further potential risk because their equity is not accessible.
One reason Indianapolis homeowners find themselves suddenly as underwater homeowners is the fall of property values. A recent Indiana home sales report by the Indiana Association of REALTORS® found that home sales and median home prices continue to fall across the entire state of Indiana. Likely, many buyers who purchased homes when the market was hot several years ago expected their homes would gain in value by now. Instead, due to the state of our country’s economy for one thing, many have either felt no gains or actually had their homes depreciate in value.
With so many underwater homeowners now debating what to do, unique solutions must be considered. As of now, a homeowner in the situation where their home is worth grossly less than the mortgage they have on the property are left with these foreclosure options:
Pay their current mortgage. Homeowners that are still able to attempt making their monthly payment can continue to pay it, of course. However, in cases where the ratio of loan-to-value is too high, this is not a likely scenario.
Default on their mortgage and look at modification options. Efforts are being made to help homeowners who are in a negative equity situation. President Obama has recently backed such a program called Making Homes Affordable.
Look at foreclosure options. There is more than one option to consider when you feel it is time to give up your home. One of these is called a deed in lieu of foreclosure where the home is turned back over to the lender without foreclosure proceedings.
Consider a short sale. In this scenario, the bank allows for the property to be sold for less than what is owed on the mortgage.
Finally, foreclosure. Where all other options are exhausted, owners here finally just default on their loans and await their eviction notice.
Clearly, in most of these scenarios, homeowners are not only greatly inconvenienced but their future financial stability is put at serious risk. Foreclosure is really a lose-lose for all involved and for our communities in general. Not only are credit scores annihilated but lenders also suffer, as well as home values continue to fall.
One possible solution that has been proposed entails lenders partner with homeowners and work together. This solution involves an equity sharing agreement over the long-term.
In this scenario, for example, a homeowner who bought their home at $200,000 and finds that their property has plummeted to $120,000 (40 percent value reduction) would engage in an equity share where the lender would write a fresh loan for $120,000. The lender would then obtain 40 percent interest in the home. Additionally, the homeowner agrees to own the property for a set number of years, after which the property is sold and whatever is gained from the sale is split in the same percentage with the lender.
If you find yourself in one of these scenarios and need to sell your home, contact an Indianapolis REALTOR® for more information.