It’s not hard to wind up with underwater mortgages. When you have an underwater mortgage, it can feel like you’re sinking because you find yourself in a position where you owe more than you could currently sell your home for.
How Underwater Mortgages Happen
My husband and I bought our first and current house in 2007. My husband had just returned from a year of military service in Iraq, then I got pregnant (like, right away), and we knew we were going to soon outgrow our 2-bedroom apartment. Plus, we were anxious to have our OWN place in a quiet neighborhood, where we would no longer have to listen to our apartment neighbors yelling at each other and blasting their music at 1 in the morning. (We didn’t pick the best apartment complex to live in.)
The house we bought was the 3rd house we looked at (lucky number 3, right?). It was a gem compared to the first two, and had pretty much everything we wanted, so thinking that home prices were likely to just get higher, we jumped on it. Everything went smoothly, and a few months later, our daughter Heidi was born.
However, little did we know…
We bought our house at the right time for us, but the WRONG time for the housing market.
Shortly after we bought our house, the housing market crashed, and house prices began to fall. Fortunately, interest rates went down so we refinanced a couple years later to save money over the 30-year term of the loan.
But now – 6 years later – we still owe about the same amount we bought our house for in 2007. And now its taxable value is $50,000 LESS. So we – like millions of others – are “underwater” with our mortgage. We owe more than our house is worth.
I’m also struggling with the fact that if we had waited for just a year or two to buy a house, we could have gotten a bigger house for less. I’ve looked at houses on the market after we bought ours and sheesh! The kinds of houses that were priced so high they were out of our range in 2007 were now priced much LOWER than the small house we bought. Ugh!
With that in mind, imagine how it feels when people say things like “What a nice first house” or “You paid that much for such a small house?” and “How can you fit your relatives in your house for the holidays?”
Yes, those actual comments were made to us in the last few years, each by a different person.
If only everyone understood what people like us were going through:– We would have had a bigger house for less if we were psychic and knew the housing market would become such a buyer’s market, just a year after we bought ours! Then we would have waited!
So where’s the comfort for people like us?
I looked online for any kind of “There, there…everything will work out…and here’s why” article. All I could find is advice for what to do if you can’t afford your mortgage payments or want “out”…and there’s a LOT of that, but nothing for simply knowing it’ll be okay despite your underwater mortgage.
So, I talked to our realtor, Dale Wilson, who’s fabulous and has worked in the business for decades and seen many underwater mortgages.
Dale told me several things that gave me relief.
First of all, he said that the housing market IS recovering.
Sales have increased by 11-14% since last year (2012). He’s made more money in January and February of this year than he did all of last year. Realtors are competing for houses to sell – they’re now in great demand.
He also reassured me that the taxable value of our house is NOT the same as the amount shown on that “Estimated property taxes for [year]” mailing we get every year from the county (whew!). So while the government sees our home value at $50,000 less than it was 6 years ago, its market value is actually much higher. To find out this value, we’d have to get a market analysis done on our home, which our realtor said he could set up for us for free. I didn’t know that until he told me.
So here’s my own “comfort” list for people like us:
COMFORT FOR THOSE OF US WITH UNDERWATER MORTGAGES
- You’re not alone. About 1/3 of mortgage holders are “underwater.” That’s about 3.5 million of us.
- The housing market is recovering. Like our realtor said, sales have increased 11-14% since last year alone. This means that home values are increasing as well (slowly, but surely).
- Market home values are higher than taxable home values. That’s a good thing, because it keeps your property taxes as low as possible, and makes your home a better candidate for selling than it may seem.
- Refinancing is becoming easier for everyone, and rates are lower than ever, so if you haven’t refinanced, don’t assume that because you’re “underwater” that you won’t qualify. We did!
I could throw in another positive point…which is that the recession has taught people how to be more frugal and live more simply like many of our grandparents have lived. For example, in our case, if we had a bigger house, who knows what our utility bills would be, plus there would be more space for me to have to clean all the time. Perhaps being stuck in our smaller, “first” home somehow saves us time and money?
Jeff Yeager, author of “The Cheapskate Next Door: The Surprising Secrets of Americans Living Happily Below Their Means,” gives people with small homes like us a great deal of comfort in chapter 10, “Break the Mortgage Chains that Bind Thee.” He says that cheapskates – people living happily below their means – tend to buy smaller homes than the typical American, averaging 1650 square feet vs. the national average of 2300 square feet. (Our house is about 1700 square feet, though a chunk of that is our unlivable, unfinished basement.)
Yeager goes on to make recommendations based on cheapskate trends…including “Stay in that house as long as you can. Enjoy it. Get to know your neighbors.” What a good point. He calls it “Bucking the Three-Home Ownership Trend.” Yeah, many of us buy our first house expecting to move “up” to a bigger house at the earliest opportunity. It makes sense, especially as our families grow.
But maybe that doesn’t have to be the expected pattern of a homebuyer. I HATE moving. I’d rather have a bigger house, but I love our big yard and a quiet, friendly neighborhood. I’d hate to lose what I do like about our house just so we can have more room to put our stuff. Plus, as a Christian, my goal is to be thankful and happy with what I have, rather than to “covet” what others have. It’s been hard, but I want my kids to grow up seeing their parents happy and grateful.
The reality is, we will probably stay in this house for the full length of the mortgage. And that’s ok. Particularly if it means spending years “underwater.”
Honestly, we’re lucky to still be in our house. Many have faced foreclosure. I know of people who have lost their homes due to the whole housing crisis, and it’s completely devastating, regardless of underwater mortgages. If you’re one of those people, my heart goes out to you. But be comforted knowing that you’re in good company and that the economy IS getting better.
Thanks for reading this!