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When You Are Underwater on Your Mortgage!

Finding yourself with an underwater mortgage can feel isolating. This financial scenario occurs when homeowners owe more on their mortgage than their property is currently worth. It is a situation that brings both challenges and tough decisions, sometimes including the consideration of short sales and foreclosures.

Some real estate markets, like Dallas-Fort Worth, are vibrant, rapidly expanding metropolitan areas with diverse, complicated real estate opportunities. However, economic fluctuations, changes in the job market, or personal financial setbacks can lead homeowners to face mortgages that exceed the value of their homes. This can be particularly stressful in an area if it is known for its economic dynamism and growing population.

In this blog post we explore the considerations, options, and suggested steps for those caught in this difficult position.

Key Considerations

  1. Market Fluctuations:  It is crucial to stay informed about the local real estate market. If trends suggest an upcoming increase in property values, it might be worth sustaining the mortgage payments until the market rebounds.

  2. Financial Health:  Assess your overall financial situation. Can you afford to continue making payments, or are the financial pressures too great, risking default?

  3. Future Goals:  Consider your long-term goals. Are you planning to stay in the local area? Do career or family considerations require relocating?

Challenges of an Underwater Mortgage

  1. Reduced Mobility:  Owning a home that is worth less than its mortgage can severely restrict your ability to relocate or upgrade. This is especially problematic in a competitive market such as Dallas-Fort Worth.

  2. Refinancing Difficulties:  When your home's value dips below your mortgage balance, refinancing options dwindle because lenders typically require a loan-to-value ratio of 80% or better.

  3. Potential for Foreclosure:  If financial strains continue without relief, foreclosure becomes a looming threat. This not only damages your credit but also displaces your family and forfeits your home investment.

Exploring Your Options

  1. Hold and Hope:  Sometimes the best strategy is to keep making payments, particularly if market projections look favorable. Investing in home improvements might also help increase the property's market value over time.

  2. Loan Modification:  Contact your lender about adjusting the terms of your mortgage. You might qualify for reduced interest rates or an extended loan term, which can lower monthly payments.

  3. Government Programs:  Look into federal programs that assist homeowners with underwater mortgages. While HARP has ended, other programs might offer refinancing opportunities.

  4. Rent Out the Home:  If rental prices in your area are favorable, consider renting out your property to cover mortgage costs while you live more affordably elsewhere.

The Realities of Short Sales and Foreclosures

When other options are not viable, homeowners might consider a short sale or face foreclosure. Both are significant steps with serious implications:

Short Sales:

  • What It Is:  Selling your home for less than the amount owed, with the lender’s permission.

  • Credit Impact: Less severe than foreclosure but still substantial, affecting your credit score and ability to buy another home in the short term.

  • Lender Agreement Required: Lenders must agree to accept less than the owed mortgage amount, which isn’t always guaranteed.

  • Potential for Deficiency Judgments: If the sale proceeds don’t cover the mortgage balance, lenders might seek a deficiency judgment, requiring you to pay the difference.


  • What It Is:  The process by which a lender takes possession of a property after the homeowner fails to make payments.

  • Credit Impact:  A foreclosure severely impacts your credit, typically remaining on your report for up to seven years, making future loans difficult or expensive.

  • Loss of Control:  Unlike a short sale, foreclosure offers the homeowner little control over the timing and terms of losing their home.

  • Long-Term Financial Ramifications:  Beyond damaging your credit, a foreclosure can lead to increased future mortgage rates and difficulty securing rentals.


Being underwater on a mortgage, especially in an area like Dallas-Fort Worth, is undeniably challenging. It presents not only financial strain but also emotional stress as it impacts your living situation and future planning. However, by understanding your options—from government refinancing programs to potentially renting out your property—you can make informed decisions that best suit your circumstances.

Navigating an underwater mortgage requires careful consideration of the market, personal financial analysis, and an understanding of the consequences of actions like short sales and foreclosures. Consulting with financial advisors and real estate professionals can provide guidance tailored to your specific situation, helping you regain your footing in a turbulent market.

If you are interested in discussing this topic further or in need of assistance, contact us. We would be honored to assist you.

Disclaimer: This blog post, and associated blog posts, and our website are not designed to and do not provide medical or legal advice, professional diagnosis, opinion, treatment, or services to you or to any other individual. Through this series, the associated blog posts, and our website, and linkages to other sites, Transformation Advisory, LLC DBA DFWREAdvisors Group, provides general information for educational purposes only. The information provided in the series, the associated blog posts, this website, or through linkages to other sites, is not a substitute for medical, legal, or professional advice or care, and you should not use the information in place of a visit, call, consultation, or advice of an attorney, mortgage professional, real estate professional, medical professional or other licensed services provider. Transformation Advisory, LLC DBA DFWREAdvisors Group is not liable or responsible for any advice, course of action, or treatment, or diagnosis, or any other information, services, or product you obtain as a result of reading this series, the associated blog posts, this website, or through its linkages to other sites.


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