Can I Sell My House for Less Than I Owe?
Are you struggling with a mortgage that’s more than your home’s worth? You’re not alone. The portion of mortgaged homes considered “seriously underwater” recently ticked upward in 37 states. This has some homeowners asking, “Can I sell my house for less than I owe?”
Whether it’s due to market changes, property damage, or financial difficulties, you want to know your options before you make any permanent decisions. In this post, we’ll look at the impact of negative equity and ways to overcome this financial hurdle if you need to sell your home.
Editor’s note: This post is for educational purposes and is not intended to be construed as financial or legal advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.
What is negative equity?
Negative equity occurs when the value of your home is less than the amount you owe on your mortgage. This situation is often referred to as an underwater mortgage or an upside-down loan. Essentially, if you were to sell your home, the proceeds wouldn’t cover your outstanding mortgage balance, leaving you with a financial shortfall.
For a home to be considered “seriously underwater” by lender standards, the outstanding balance of the mortgage must be greater than the property’s value by at least 25%.
Reasons you might sell a house for less than you owe
Several scenarios can lead to negative equity, leading you to consider selling your home for less than the mortgage balance:
Market downturn after buying at peak price: If property values drop after your purchase, your home may be worth less than what you paid for it.
Significant damage to the home: Major uninsured damage from natural disasters or other events can drastically reduce your home’s value.
Home has fallen into major disrepair: Lack of maintenance or costly repairs can diminish your property’s market value.
Financial challenges while holding a second mortgage: Managing a second mortgage can strain your finances, especially when property values decline.
Inaccurate appraisal at purchase: An overestimated appraisal can lead you to pay more than the true value of the home. This sometimes occurs due to appraisal fraud.
Insufficient down payment: Putting down a small down payment increases your loan-to-value ratio (LTV), making it easier to fall into negative equity if the market shifts.
