Your equity is ever changing, as your home's value fluctuates and as you pay down your mortgage loan. If your home's value drops below your outstanding loan balance, you end up with negative equity. Negative equity often occurs when a house is purchased with a mortgage and then the economy starts to slow or home prices start to drop. As of September 2015, the U.S. Negative Equity rate, the share of mortgaged homeowners that owe more on their home than it is worth, was at 13.4%. Understanding how these situations come about can help you make smart decisions when financing your home at the Lake of the Ozarks.
Causes of Negative Equity
Typically, a buyer will secure a home loan that is no more than 80% of the current value of the home being purchased. However, a number of factors can alter that loan to value ratio, sometimes making it exceed 100%. When this happens, the homeowner is said to have negative equity. The causes of negative home equity can either be the result of lending requirements that are too lenient or a change in the housing market. These causes of negative equity can include:
- Buying a home during a market peak, when prices are high and then dramatically drop
- Borrowing against the home with a home equity loan and then experiencing a decline in the market
- Securing a high-interest loan with minimal amounts applied towards loan principal
- Putting too minimal of a down payment on your home at the time of purchase
If you're wanting to sell your home, having a negative equity is a problem. Unless you're willing to take a loss and you have savings to pay the difference between what you owe and the value of your home, moving isn't going to be an option anytime soon. In addition, refinancing your home at the Lake of the Ozarks is most likely not an option, as most lenders will not let those homeowners with negative equity switch to a new mortgage deal.
Fortunately there are options for those homeowners that find themselves with negative equity, including government programs that offer homeowners some relief from this situation. If you think you may have landed yourself in a negative equity situation, contact the best mortgage lender at the Lake of the Ozarks. I'm here for all of your home financing needs and would be glad to answer any questions that you may have regarding a home loan at the Lake of the Ozarks.
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Sr. Residential Mortgage Lender
NMLS #: 493712
2265 Bagnell Dam Blvd, Suite B
PO Box 1449
Lake Ozark, MO 65049
Cell: (573) 216-7258
**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.