This is bad. Underwater is only good when you're a fish.
You bought that lovely 4-bedroom, 3-bath for $470,000, with $70,000 down in a big, fat, bull housing market. But unfortunately, the good times didn't last...and now Zillow says your home is worth $380,000. And...you just got fired. You need to move.
After $20,000 in commissions and closing costs, your home sale will net $360,000. And that's a problem, because you have $400,000 in loans on it. In essence, you'll have to write a check for $40,000 to the bank to get out from under the mortgage because it's so underwater.
The water line? The amount of mortgage you have on the place. And really, to be fair, then subtracting the commission to the broker who'll sell the home plus closing costs. Bad place to be.
If it ever happens to you, you'll have 7 years of penalty box time, wherein a normal lender simply won't lend money to you. If you qualify for an FHA loan, it's a 3-year penalty box, and you'll still have to get PMI (Private Mortgage Insurance), even if you put more than 20% down.
See: Short Sale.
Related or Semi-related Video
Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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