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The Burden of Negative Equity

A homeowner's equity can be defined as the home's value minus the total of all debts owed on the property. A negative equity value means that the homeowner's property debt is a value greater than that of the current property value. If you're in this situation and simply visualizing yourself as a tenant this may not be a big deal to you. So long as you can continue to make the monthly payment, you're not going anywhere. However, if you're a homeowner with a homeowner train of thought, this may be quite a burdensome mental block for you, knowing that the small portion of your mortgage payment going towards your principal is doing nothing to put more money into your investment.

This also may present a problem if unexpected situations arise. If your company relocates and you need to follow them, you will first have to be out of the negative in order to procure a clean title for sale. Options such as trying to transfer any existing liens to another property won't work either. A homeowner that has negative equity can't transfer the debt to the new house that they plan to buy. A lien applies to a specific property and that property only.

Some in this situation decide to re-visit the tenant concept, renting in their new area while renting out their home in the old area.

Negative equity isn't always something that the homeowner can control. Declining property values in your area may add to your situation, resulting in negative equity. This will especially effect new homeowners that put zero down on their property. Selling immediately isn't an option when there's no equity and you have to pay a real estate broker four or five percent.

In the end, many home buyers decide to stay put, hoping that in time the market in their area will come back around and price appreciation will provide an escape from the burned of negative equity. Biding your time and continuing to make your mortgage payment may just be the best option for you if you face this situation.
 
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