What is Negative Equity?

Equity is your home means the amount of the home you own versus what is a lien on the property typically from a mortgage balance. You can build equity in a couple of ways. You can pay your mortgage payment each month a portion of that goes toward principal whereby you own a bit more on the home. The second way is through appreciation where if property values in general rise your home’s value rises providing more equity in the home.

Negative equity is when you owe more on the home than what it is worth. This normally occurs when you may have put a lower down payment on the home and property values decrease. This is also termed ‘under water’ or ‘upside down.’

If you do find yourself in a negative equity position it would almost be impossible to refinance your loan and possibly as difficult to buy a new home as there would not equity for a down payment on a new home.

It is best to try to avoid a possible negative equity position by placing a larger down payment on the home. Try to keep look in a price range which is comfortable and affordable for you and in an area which is in an appreciating market.

It is best to work with a qualified and trusted real estate agent to guide you and provide the best real estate advice along with working with trusted mortgage advisor.