When you have negative equity in your home, it means that you owe more money on your mortgage than your home is worth. Some lenders refer to this as an “underwater mortgage.” But if lenders won’t loan you more money than a home is worth, how is negative equity possible?
Picture this: you buy a home worth $200,000. When you close on your loan, you bring a 20% down payment ($40,000) and take out a loan for the remaining $160,000. You move into your new home and everything is great. Then, local property values take a tumble and your home value plummets. Your home that you bought for $200,000 is now only worth $140,000. Through no fault of your own, you now owe $20,000 more to the bank than your home is worth. Having negative equity can make it harder to sell your home or get a refinance.
If you live in an area with falling property values, you may have negative equity in your home. Though there is no surefire way to reverse negative equity, you do have a few options you can use to make your situation less dire:
- Refinance. If you’re having trouble making your monthly mortgage payments, you may want to refinance your loan. There are a few limited ways you can refinance with negative equity. An FHA Streamline, VA IRRRL, or High LTV Refinance can allow you to refinance a loan with negative equity. Contact your lender to learn more about these options and to find out what the qualifications are.
- Rent out your home and buy a new one. When some homeowners realize that they have negative equity, they choose to buy a new home and rent out their property until local property values rise. But before you say “rent my home in Graduate Hospital” or another part of Philadelphia, make sure you’re prepared to handle the day-to-day tasks of being a landlord. If you can’t make that kind of time commitment, a property management company like DJCRE can help.
Are you ready to say “rent my home in South Philly?” Let DJCRE help you manage your rental property! Give us a call today to learn more!