Negative equity happens when home values drop. Through the mortgage meltdown, you hear people say they are under water on their home.

That is negative equity. It is the opposite of what you want to happen when you buy a home.

Negative Equity Definition

Negative equity is when your mortgage is more than the value of your home. If you didn’t put any money down or little money down and your homes value is lower than your mortgage amount, you have negative equity.

Even if the home value stays the same but due to a negative amortizing mortgage, the balance goes up. If the value stays the same and you put little down with a mortgage that grows each month, you have negative equity.

If you have negative equity, what are your options? Can you sell or refinance?

You could sell but a short sale would have to happen. A short sale is when the lender agrees to take less than you actually owe to get the home sold.

Those are not easy. there are real estate agents who specialize in short sales but it is not a guarantee the lender will agree and they can take a long time to complete.

As far as a refinance goes, there is no way to refinance with negative equity.

You don’t have any equity to pay the real estate commissions and other settlement costs to sell and you don’t have equity to pay closing costs to refinance. Your only option is to bring money to the closing from your own bank account.

That is not a choice for most of us. Having a negative or zero equity position is debilitating for most borrowers.

You can try to modify your mortgage if you cannot make the payments but that is also not a guarantee.

If you can keep making your payments then try to hold on until the market turns around. It won’t be this way forever…what goes down will come back up.

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