Being underwater, also called being upside down, means you owe more on your mortgage than your home is currently worth on the market. For example, if you owe 280,000 dollars but your home would only sell for 250,000, you are 30,000 dollars underwater. This makes it difficult to sell without bringing money to closing and limits your refinance options, though specialized programs do exist to help.

In some cases, yes. If your current loan is a conventional mortgage backed by Fannie Mae or Freddie Mac, you may qualify for refinance programs that allow high loan-to-value ratios. Additionally, some portfolio lenders and credit unions offer underwater refinance options. VA borrowers with existing VA loans can use the VA Interest Rate Reduction Refinance Loan which does not require an appraisal. Contact NMHL to evaluate which options are available for your specific loan.

Walking away, known as a strategic default, has serious consequences including a foreclosure on your credit report for seven years, potential deficiency judgment liability depending on your state, and a two to seven year waiting period before you can purchase another home. In most cases, staying in the home, making improvements, and waiting for market recovery is the better financial decision, especially if your monthly payment is manageable.

The timeline depends on how far underwater you are, your mortgage amortization, and local market trends. With normal home appreciation of three to five percent annually and regular principal payments, many underwater borrowers reach positive equity within two to five years. Making extra principal payments and investing in strategic home improvements can accelerate this timeline significantly.