If your mortgage balance exceeds your current home value, you are underwater. In other words, you have negative equity in your home. This is not something any homeowner wants to think about, especially since your home is the largest investment you will make. While you can sit and dwell over the fact that you lost money, a better option is to figure out how to make the best of the situation. Here are some simple ways to make the most of your VA loan when you owe more than the value of the home.
Do Nothing When You are Underwater
You have the option to do nothing, but wait it out. This requires patience and the ability to avoid moving. Not everyone has this option. If you do, though, stick it out. Home values will start to come back eventually. This will allow you to make your investment back. If you bought this home as your “forever home,” stay there as long as you can. If you bought it as a temporary solution until you or your spouse had to relocate, then you might have to opt for other options. If you can stay, though, it offers you the best solution in the long run.
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Refinance with a VA Streamline Loan
As a veteran, you have the lucrative option to refinance with a streamline loan. This might not mean anything to you yet, but it will benefit you. If you currently have a VA loan, you have the option to refinance with little verifications required. Namely, this means no appraisal, income verification, or credit score verification. A homeowner who owes more on his home than the value will revel in this idea! All you need to verify with the VA Streamline Loan is your payment history. If you struggled to make your housing payments in the last year, you will not be able to use this program. However, if you have no late housing payments during this time, you qualify for the program.
The VA Streamline Loan does not provide you with cash out of the home (there is no equity if you are upside down anyways). It offers you the ability to lower your interest rate in order to save money. You will pay the funding fee again, but if you save money every month, it will be easy to pay the funding fee off quickly. You are able to roll the funding fee into your loan, too. In addition, you may be able to roll the allowed closing costs into the loan. This could mean that you don’t have to bring any money to the table and will benefit from a lower monthly payment.
Short Sale the Home
An option you may want to consider if you are truly underwater and cannot figure out a way out, is to negotiate a short sale with your lender. This means that the lender accepts a lower amount than what you owe on the mortgage. The benefit to you is that you may get more interest in the home because of its lower price. This position should not be utilized until you receive your lender’s approval, though. You need to know that they will accept the lower amount as payment in full. This means the lender takes the loss. This does not harm your credit as much as a foreclosure harms it.
Something you should keep in mind, though, is your VA entitlement. The entitlement you used to purchase the home you may short sale will not be available to you any longer. If you have any remaining entitlement that you did not use, you can use it to purchase a home in the future, though. In fact, the VA does not have any requirements as far as a waiting period after a short sale. Some lenders stick with the standard 2-year waiting period that you would have to have after a foreclosure, but this is not set in stone. Each lender can have their own requirements.
Deciding What to do With Negative Equity
How you proceed when you have negative equity in your home is a personal choice. You can consult with lenders or appraisers in the area to see what they think will happen. You should definitely do this before you start the short sale process. If you are able to stay put, this is usually the best option, however, the VA Streamline Refinance allows you the option to start getting ahead by paying less interest and principal. Either way, you have to wait out the value of your property – it makes sense to save money while you do so, right?
If you decide to take advantage of the VA Streamline refinance, you do not have to stay with your current lender. Talk with various lenders in the area to see what each one has to offer. The VA just guarantees the loans; they do not set the interest rates or closing costs that a lender charges you. Compare the costs and rates that each lender offers to see who has the best deal. After all, in this situation, you want to save as much money as possible so you can get the principal paid down. In the end, you come out the winner when you come out from being underwater on your home loan after the housing crisis ruined the values of your area’s homes.
