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Negative Equity: What it Means and the Options You Have

Negative Equity


Do you want to sell your house fast in Las Vegas? This may be a problem if you have negative equity. 


Negative equity happens when the real estate property falls below the balance on the mortgage. It’s calculated by taking the current market value of the home and subtracting the amount remaining on the mortgage. For example, if your Las Vegas home sells for $200,000 but you owe $250,000, you have $50,000 in negative equity. 


If your home has negative equity, you probably have questions about what this means for you. Let’s learn more about negative equity, how it occurs and what to do when you want to sell your house in Las Vegas. 


How Does Negative Equity Happen? 


There are a number of ways that negative equity can happen. Some are in your control and some are not. Here are a few examples: 


  • Market decline. Underwater mortgages were common in 2007-08 during the height of the financial crisis. People purchased homes that quickly plummeted in value. Today, less than 10 percent of homeowners are underwater
  • High-interest loans. Borrowers who are deemed high-risk are charged a higher interest rate than those considered low-risk. This leaves borrowers paying mostly into the interest rates and not the loan.
  • Poor home condition. The value of a home relies on its condition. If your home falls into distress, its value will decline. 
  • Small down payment. As soon as you purchase your home, you’re likely to have some negative equity with a small down payment. 
  • Low appraisal. A lender won’t give you more for a property than what it’s appraised for. So, if the appraisal comes in lower than the price you had agreed on, you will have to lower your price and eat the difference. 


Can You Sell a Home with Negative Equity? 


Being upside down in your mortgage makes it difficult to sell your home because you have to come up with the difference between the sale price and the balance. Using the example above, you would owe the bank $50,000 at closing. If you don’t have this cash on hand, you do have some other options. 


  • Wait it out. If you can hold onto your property longer, do so. Make your normal payments and wait it out until the market is better or your financial situation improves. 
  • Make extra payments. Pay down your mortgage to close the gap. For most loans, you can specify that you want the extra money to go toward the principal only. This lowers your balance and builds equity faster. 
  • Rent your home. Consider renting out your home. You may not be able to take out a second mortgage, but you can rent something else in the meantime. 
  • Refinance. Talk to your lender to see if you qualify for refinancing. You may be able to lower your monthly payments this way. However, refinancing an underwater property is more complicated. 
  • Arrange a short sale. If you can’t make up the difference and you need to sell your home, talk to your bank to see if you can arrange a short sale. While not ideal, it’s better than foreclosure. 


We Buy Any Vegas House buys all types of properties, including underwater homes. We can help! Give us a call to see how we can assist with your property. You may have other options that you’re not aware of!