"Understanding Negative Home Equity: What It Means and How to Avoid It"

Home equity is the difference between the value of a property and the outstanding amount of any mortgages or loans secured against it. Negative home equity occurs when the outstanding amount of mortgages or loans on a property exceeds its value. This can happen when home values decline or when homeowners take on too much debt relative to the value of their property.

Being in a negative equity situation can be difficult for homeowners. It means that they owe more on their mortgage than their home is worth, making it difficult to sell or refinance the property. Additionally, negative equity can make it difficult for homeowners to access additional credit or loans, as it can signal to lenders that they are a higher risk borrower.

So, what can homeowners do if they are in or close to a negative equity situation? Here are a few options:

• Wait it out: If the decline in home values is temporary, it may be best to wait for the market to recover before attempting to sell or refinance the property.
• Rent out the property: If the property is generating rental income, this can help to offset the cost of the mortgage and improve the homeowner's financial position.
• Refinance: If interest rates are low, it may be possible to refinance the property and lower the monthly mortgage payments.
• Short Sale: A short sale is when a homeowner sells a property for less than the outstanding mortgage balance. This option is typically only available to homeowners who are in financial distress and unable to make their mortgage payments.
• Foreclosure: Foreclosure is a legal process that allows the lender to take possession of a property if the homeowner is unable to make their mortgage payments. This option should be a last resort, as it can have a significant negative impact on the homeowner's credit score and financial well-being.

Negative home equity can be a difficult and stressful situation for homeowners, but by understanding the causes and the options available, homeowners can take steps to improve their financial situation and avoid foreclosure.

Benjamin Kell NMLS 2126313