What Is Negative Home Equity? Everything You Need To Know
Buying a home is one of the biggest investments you can make. Since your home is an investment, you want to make sure that its value increases over time. When the time comes for you to sell your Denver, Colorado, home, the goal is to earn more money from the property sale than what you initially paid for it.
It is common for many people in Denver to take out a mortgage loan to buy a house, which means that they don’t fully own the home, and their equity in it is lower than the home’s value. Home equity is the portion of your house that you actually own.
When selling your home to make a profit, you want to ensure that you don’t have negative home equity.
What Is Negative Home Equity?
Simply put, negative home equity implies you owe more on your loan than the current value of your property. Understanding how to determine a home’s equity is important. All you have to do is deduct the remaining balance of your mortgage from the value of the property. You have positive equity if the result is an amount greater than zero. However, you have negative equity if that amount falls below zero — you owe more money on your house than it is worth, which is also known as an underwater mortgage.
Leading Causes of Negative Equity on Your Denver Colorado Property
Negative equity can occur because of various distinct circumstances. It’s critical to understand these factors so that you can make an informed decision on buying or managing your home. Here are a few reasons why you can have negative equity.
Declining Market in Real Estate
A declining market in real estate means the value of houses is declining because not many people are buying. A declining market might be an inescapable cause of negative equity. However, if you buy a property at the peak of the market, you will eventually owe more than it is worth if the market drops in the future. As a result, knowing the best time to purchase a property is crucial.
Low Down Payment
It is always preferable to make a large down payment when taking out a loan to buy a home since your total debt will be less and your interest rate will be lower. Making a large down payment can often ward off negative home equity when the housing market declines because you are left with a smaller loan balance overall.
Taking Loans With High Interest Rates
If your loan has a high interest rate, the majority of your monthly mortgage payments will just go toward interest rather than toward paying your debt. If you can’t keep up with the large payments, this might push you into a situation where you have negative equity in your property.
Sell Your House Quickly for Cash
The sad reality is it is difficult to recover from a negative home equity condition. When you are aware that the worth of your property is less than the entire amount you are paying for it, improving your home and attempting to raise its value may require a lot of work or additional investment. Instead, you can quickly sell your property for cash in its current condition without paying any more money to list it for sale.
ClearSale is a leading real estate company that buys houses for cash. Your home doesn’t need to be upgraded, fixed, or renovated for it to be put on the market. Here at ClearSale, we buy houses Denver property exactly as-is for the fairest price possible. Contact us today for a free quote.
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