- Most of the time when a mortgage is upside down, a bank will not allow the borrower to qualify for a refinance. Typically, you cannot refinance a home that is upside down unless you have cash to put up to make up the difference. Because of this, a court will not require you to refinance the loan. In this situation, the two parties involved can often work out another arrangement instead of having to lose money by refinancing.
- When a couple is fixed with an upside down mortgage and a divorce, one option that may be considered is getting help from the government. Through a program known as the Home Affordable Refinance Program (HARP), homeowners can sometimes qualify for refinancing even if they owe more than what a house is worth. With this program, you can refinance for up to 125 percent of the value of the home as long as you meet the qualifications of the program.
- Another option that may be considered in this situation is waiting out the market. Sometimes the judge in a divorce case will allow the spouses to continue to own a house jointly until the value of the home increases enough to justify a sale or a refinance. This is a risky proposition because one spouse may move out of the house and not know whether the other spouse is actually making the mortgage payments.
- Another option that may be considered in this situation is renting out the property. Instead of allowing one spouse to live in the property while the other moves out, they both move out. Then the marital house is rented out to another party. This can generate enough money to pay the mortgage payment while the owners wait for the house to appreciate in value. The spouses can manage the property or rely on a property management company to handle it for them.
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