Even with rising prices, your home is still underwater. What happens now?

Recent reports from CoreLogic show that fewer than 10 percent of Twin Cities homeowners are underwater on their mortgages; this is both better than the national average and down from a staggering 20 percent two years ago, when prices were at their lowest.

Home prices are still on the rise, but at a slower rate than last year. Distressed homeowners who were hoping for the surge to continue may now be wondering what their options are.

1. Ride it out

If you can continue to pay your mortgage, it’s probably worth it to do so since your property’s value will likely continue to rise at recent levels. However, trading up will likely be more difficult for you, as your current home won’t offer the equity needed to make a smooth upward transition. So, if you can, try to save on the side for your future down payment.

2. Rent it out

One continued side effect of the economic recovery is that rental properties are in high demand. Meanwhile, interest rates remain low and prices have still not returned to their pre-bust levels. It’s a good time to buy and a great time to be a landlord. If it’s an option for you to buy another small property, do the research and find a popular area where renters may pay more than the proposed mortgage payment. If you’re not in a position to buy, consider renting a room or area of your current property to help keep you afloat.

3. Get out

There’s no shame in admitting that you’re headed toward crisis and need to take steps to get out of your bad situation. One option you have when you’re in a negative equity position is to short sell your home. A short sale is when the bank agrees to allow you to sell your home for less than what you owe on the mortgage(s).

It’s important to remember that the “short” in short sale refers to the seller being in the red – not the amount of time it takes for the sale to go through. In fact, the process of short selling can often take months, as the lender(s) of the original mortgage is very selective of the offers they accept.

An Edina Realty short sale expert was recently quoted in the Star Tribune on this topic, explaining that the process of a short sale can be complicated because it “requires the cooperation of many parties.” Still, short sales are a much preferred solution to foreclosures. Both can negatively affect your credit, but short sales are preferred by lenders and communities in general.

If you’re in financial distress and aren’t sure what comes next, reach out to the Minnesota Homeownership Center. Their experts and home counselors will walk you through your options and help you avoid foreclosure, when possible.