Just over a quarter of all homeowners in the U.S. were said to be equity-rich in the first quarter of 2020, although fears are growing that the coronavirus pandemic will see the number who owe more on their mortgage than their home is worth start to rise.
According to the latest analysis from ATTOM Data Solutions, around 14.5 million - or 26.5% - of the 54.7 million mortgaged homes in the U.S. were equity-rich at the end of March 2020, meaning the amount of loans secured by those properties was 50% or less of their estimated market value.
Making for less comfortable reading, however, were the numbers found to have mortgage loans in excess of the value of their property - or underwater. Indeed, some 3.6 million homes - or one in 15 - were earmarked as being “seriously” underwater in the first quarter, making up 6.6% of all properties with a mortgage. To fall into the seriously underwater category, the loan secured on a property will be at least 25% more than the estimated market worth of the home.
Options for the equity-rich
For homeowners fortunate enough to fall into the equity-rich bracket, the opportunity arises to use the best home equity loan services and home equity lines of credit (HELOC) to unlock the capital stored up in their homes. The ability to tap into larger sums than are usually available through the best personal loans will often see home equity loan services used to fund home renovations, while a HELOC - where you can withdraw money against the value of your property as and when you need it - offers the potential to help bridge financial gaps created by the Covid-19 outbreak.
What is a home equity loan?
Find out more about home equity loans and HELOCs and making the most of the equity built up in your property.
According to the research, the highest share of equity-rich properties remain in the Northeast and West of the U.S., with California (42.3% equity-rich), Hawaii (39.0%), Vermont (38.2%), Washington (36.6%) and Oregon (34.0%) leading the way. In the rundown of the top five metros enjoying the greatest proportion of equity-rich homeowners, all were located in California, with San Jose (64.8% equity-rich) out in front of San Francisco (57.0%), Los Angeles (47.4%), Santa Rosa (45.5%) and San Diego (40.0%).
Coronavirus impact on house prices
On the other side of the coin, however, it seems likely that the number of Americans who owe more on their mortgage than their property is worth could soon be about to rise. Similarly, those who already find themselves underwater could soon see their situation become even worse.
In the first quarter, the 10 states with the highest shares of mortgages that were considered seriously underwater were all in the South and Midwest regions, led by Louisiana (17.3% seriously underwater), Mississippi (16.9%), West Virginia (15.7%), Iowa (14.2%) and Arkansas (13.0%). The metros ranked worst were Youngstown, OH (17.0% seriously underwater), Baton Rouge, LA (16.4%), Scranton, PA (14.5%), Toledo, OH (14.3%) and Cleveland, OH (13.7%).
Importantly, however, the report warns that all the figures were recorded before the coronavirus began to significantly impact the U.S. economy, and potentially damaged the housing market in the process.
“Homeowners’ balance sheets generally remained strong in the first quarter of 2020 across the U.S., with about the same levels of equity-rich or seriously underwater mortgages as in the prior quarter,” said Todd Teta, chief product officer with ATTOM Data Solutions. “But as with other rosy first-quarter reports, this one needs to be taken in the context of the looming impact of the coronavirus pandemic. With the potential for home values to fall, there is a significant chance that equity levels could drop over the coming months while underwater levels rise.”
What should you do if your mortgage is underwater?
While being underwater on your mortgage can be stressful, remember that there are millions of Americans in a similar situation right now, and many more millions who have been there before and already come out of the other side.
If your monthly mortgage payments are affordable, you are usually best to stay put and carry on as you are, in the hope that the value of your home will rise - over time, it usually will. By continuing to chip away at your mortgage at the same time, your situation should gradually improve and eventually your equity should start to grow, giving you the freedom to move in the future if you so wish.
The situation is slightly different if you're struggling to make your mortgage payments. An extra job might normally be the best way to boost your income, but right now perhaps using the best personal finance software to improve your budgeting, or finding a side hustle, might be the most realistic ways of realizing some extra funds.
If you’re still off the mark in meeting your payments, talk to your mortgage lender. Given the current economic situation, the best mortgage lenders will be ready and prepared to discuss what to do if you can’t pay your mortgage, including options such as forbearance and loan modification. Forbearance might involve your mortgage payments being paused or reduced for a certain period of time, while a loan modification usually sees the lender agree to alter the terms of your existing mortgage to make it more affordable, without actually refinancing your mortgage.
If you still remain in a situation where you have to sell your home because you simply can’t afford it, a short sale might be an option. However, again you will need to talk to your lender, as it involves them accepting less money than the mortgage loan is worth in order to sell the home. Most lenders will be willing to listen if you are significantly behind on payments or close to going into foreclosure. Some will forgive the difference between the price your home sells for and the amount you owe, but others may want you to pay the shortfall by taking out an unsecured loan. A short sale certainly isn’t ideal, but for both you and the lender, it is likely to be preferable to a foreclosure.
What to do if you can't pay your mortgage
Find out more about the options available from lenders if you are struggling to keep up with your mortgage payments.
With the lender taking control of your house and evicting you in the process, a foreclosure should always be the very last resort. Importantly, you should not just give up on your home without talking to your lender, and exploring other avenues such as the best debt consolidation companies and debt settlement companies too.
All that said, we go back to our initial point that simply being underwater with your mortgage does not mean that you have to go under completely. If you can tread water for a while - happy to stay in the same home and able to meet your mortgage payments - then over time, the housing market will hopefully recover to a point where you can start to build equity in your home.