Finding Help if You Owe More Than Your Home is Worth

If you're one of the millions of American homeowners who are upside down on his home mortgage, help is on the way.

Owing more money on your mortgage than your home is worth is called being "upside down" or "underwater" for a reason-because it feels like you're drowning, head first.

A March 2009 report estimated that roughly 8.3 million mortgage borrowers in the U.S. were stuck in negative home equity positions, which means that they're holding mortgage balances that exceed the value of the mortgaged properties. This situation of being underwater (or upside down on the mortgage), can trap borrowers into keeping a home or mortgage they no longer want.

The upside down trap is set as soon as the borrower decides to move or refinance. Someone who owes $300,000 on a home that's now worth $250,000, for example, has to pay at least $50,000 cash to the lender to sell or to obtain a mortgage refinance.

Negative home equity means slim options

Homeowners who find themselves in negative equity territory don't have to automatically accept huge financial losses. Other options include:

• Staying put. From a financial standpoint, the best option may be to stay in the home until housing values recover. It's not uncommon to purchase assets that lose value. Car owners, for example, are often upside down on their loans shortly after the purchase is made. People accept this scenario, because transportation is one of life's necessities. In this sense, making payments on an upside down mortgage isn't much different from paying rent-people do it when they need to, and they get by just fine.

• Selling short. Homeowners could try negotiating a short sale with their lender. In a short sale, the home is sold at market value, and the lender writes off the remaining unpaid loan balance. This solution resolves the situation more quickly than waiting for a recovery, but it will hurt the homeowner's credit score.

• Voluntary foreclosure. Homeowners could choose to surrender the deed to the home and move out voluntarily. The advantage here is that the homeowner decides when to cut the emotional ties to the home. The disadvantage is that the homeowner's credit score will be damaged.

• Renting the home. In cases where the homeowner is forced to move, such as with a job transfer, renting out the home might be the best option. Even if the rental income doesn't cover all of the expenses associated with owning the property, the credit impact will be less damaging than a foreclosure or short sale.

• Refinancing with Home Affordable. Homeowners who are only slightly underwater may be eligible for a 105 percent mortgage refinance through the government's Making Home Affordable mortgage refinance program. See MakingHomeAffordable.gov for more information.

You don't have to let your mortgage balance pull you under the water line. The options aren't ideal, but you can find a way to tread water through this home equity housing crisis.