Although many people attempt to achieve the “American dream” through purchasing their own home, sometimes unpredictable economic housing markets can result in homebuyers owning a home that doesn’t allow them to save money or build equity.
Below, we’ll cover what an underwater mortgage is - and how to escape it.
What Is an “Underwater Mortgage?”
An underwater mortgage takes place when you own a home that requires a higher principal payment than the free-market value of the home. This normally happens in areas where property values are rapidly falling. In an underwater mortgage situation, the owner of the home might not have equity other than the home itself. As a result, the underwater mortgage may stop the owner from selling their house unless they have enough liquidated money to buy themselves out of their mortgage.
For example, let’s say you own $100,00 on your mortgage. Home prices are quickly falling in your area and you can only sell your home for $80,000. In this case, you’re a part of an underwater mortgage because your home’s sale won’t cover the additional $20,000 you owe on the home.
How to Avoid an Underwater Mortgage
One of the best ways to get out of an underwater mortgage is to not enter one by quickly selling your home. You’ll want to be paying attention to the trends in your area for home values. As you do, if you notice that homes similar to yours are quickly losing their value, then you’ll want to rapidly place your home on the market so you can retrieve as much of the original value from your home as possible.
If you need help selling your home to avoid going into an underwater mortgage, or if you’re already in an underwater mortgage situation and you’re looking for more advice on how to get out of it, call Enlight Homebuyers at 1-800-655-8322 today. We are trusted cash home buyers in Utah and will give you our honest opinion on the value of your home. Interested in learning more? Give us a call or fill out the form below!