By Angela Colley

Jul 12, 2023

(Getty Images)

When you buy a home, you hope it will appreciate in value while you pay off your mortgage, but it doesn’t always work out that way.

Sometimes the market fluctuates, home values depreciate, and homeowners find themselves “underwater” on their mortgage—meaning they owe more than their home is worth.

If you find yourself underwater, there are a few steps you can take to turn things around.

Contact your lender

When you’re underwater, selling your home or using a traditional refinancing program may not be an option, but you may find other help through your lender.

“If a borrower has been timely with payments and has otherwise good credit, lenders are more likely to offer some assistance,” said Bennie D. Waller, professor of finance and real estate at Longwood University in Farmville, VA.

However, acting quickly may make a difference. “It is a good idea to approach a lender sooner rather than later,” Waller said.

Adjust your budget

If your home’s value hasn’t depreciated far below your loan amount, you may be able to get above water and start building positive equity in your home faster by making a larger mortgage payment each month.

To find the funds, create a monthly household budget and eliminate any unneeded expenses. It may feel like a hardship, but remember that any amount of money you pay beyond your required mortgage payment will go toward your principle and help you pay off your loan faster.

However, Waller warned, “If a foreclosure is inevitable, such money may be best saved for a rental deposit or other necessities.”

Make income from your home

If you can’t stretch your budget and are struggling to keep up with your mortgage, finding extra income could save you from a foreclosure—and you might be able to find that income in your home.

Renting out an extra bedroom or a private space, like a finished garage, can be a good source of income, but not one you should take likely.

Waller suggests adding a separate entry, if possible.

“And do credit checks, ask for references, and require a deposit” for any tenant you consider,” he adds.

Utilize Government-backed programs

You may be able to get assistance from government-backed programs like the Home Affordable Refinance Program, which offers refinancing for loans sold to either Fannie Mae or Freddie Mac. HARP works by making one or more adjustments to your mortgage, such as switching from an adjustable rate to a fixed rate or shortening the term from 30 years to 15 years so that you get a better and more affordable mortgage.

If you have an FHA or VA-backed loan, you may qualify for similar assistance through other government-backed programs like FHA Short Refinance. To see if you qualify, visit the Making Home Affordable website or contact your lender.