As of September 2008, 18% of homes have no equity or have negative equity, according to an article posted on RealtyTrac’s “Foreclosure Pulse.” Essentially, negative equity means that you owe more on your loan than your home is worth. This makes selling your house or refinancing extremely difficult. Quite simply, no one wants to pay you $400,000 for a home that’s now only valued at $300,000. Naturally, you want to be able to pay off your home loan, so you want to sell it for at least amount at which you originally financed it. The scenario leaves you quite stuck.
Unfortunately, a number of economists are predicting further home devaluation of at least 20%. Additionally, “Princeton economist and New York Times columnist Paul Krugman suggests a 30 percent decline is needed.”
So should you stick it out or is it time to cut your losses before foreclosure becomes imminent? Your financial goals and the area in which you live will all have their unique factors. One online tool that might help is the “Should I Pay or Should I Go” mortgage calculator. Obviously, the best advice you can get is from your lender, but this is a quick way to get a general idea of how your home is doing. If you do decide to sell, be sure to read our “4 Tips for Returning to Renting After Foreclosure,” and you can check out MyNewPlace.com to check out rental listings.
Tags: foreclosure, home, home loan, negative equity, refinancing