How to Figure Out If You're Underwater on Your Mortgage Loan

If your equity in your home does not exceed the total mortgage debt you owe, you are said to be underwater on your mortgage.

While real estate prices are trending upward in many areas of the United States, there are still millions of homeowners across the country who owe more on their mortgage than the home is currently worth. In other words, they are what's referred to as "underwater" on their mortgage loans.

Read on to learn more about what it means to be underwater on your mortgage loan and how you can figure out if you’re underwater.

Underwater Mortgages Explained

If your equity in your home does not exceed the total mortgage debt you owe, you are said to be underwater on your mortgage. For example, say you owe $200,000 on your mortgage and your home is currently worth $150,000. You are underwater by $50,000.

Homeowners with an underwater mortgage may face one or more of the following problems.

  • If you want to move, it can be difficult to sell your home because potential buyers won’t offer enough to pay off your existing mortgage.
  • Your lender might be able to get a deficiency judgment against you if you go through foreclosure or a short sale, or if you complete a deed in lieu of foreclosure. (Learn more about deficiency judgments.)
  • You cannot refinance, since the current value of the property is not enough to act as security for a new loan that is enough to pay off the existing mortgage.

Steps to Take to Figure Out If You’re Underwater

Here are the steps to take to determine whether you owe more than your home is worth.

Step 1

First, figure out how much you owe on your mortgage loan (or loans).

How to find out what you owe. To find out approximately what you owe, get a copy of your most recent mortgage statement (or go online) and look for the unpaid principal balance. The unpaid principal balance includesonly the amount of the loan that is unpaid. It does not include interest or outstanding charges (such as late fees or foreclosure-related charges) that you owe now or would owe in the future. For a statement of exactly how much you would need to pay off the loan, you can request a payoff statement from your mortgage servicer, which will include the unpaid principal balance plus interest and fees. (Your servicer is the company you make your payments to.)

How to request a payoff statement from your servicer. You can request a payoff statement by calling your mortgage servicer or, in some cases, by making your request online. The payoff statement will include precisely how much you must pay by a specified date in order to fully satisfy the debt. It will include any interest you owe through a certain date, and any other fees you have incurred and not paid. (Learn more about payoff statements.)

Don’t forget to include your other mortgages in the total when determining whether you’re underwater. If you have a second mortgage on your home, be sure to find out how much you owe on that mortgage as well. Then add the total amount you owe on the second mortgage to the first mortgage amount. For example, if you owe $200,000 on your first mortgage and $10,000 on the second, add the figures together and your total mortgage debt is $210,000.

Step 2

Next, determine the current market value of your home. To do this, you can:

  • hire an appraiser (although this can be expensive)
  • speak to one or more local real estate agents to find out what they think your home is worth, and/or
  • look online to review the sale prices of comparable houses that recently sold in your neighborhood to come up with an estimated value of your home.

Where to find out the sale prices of nearby, similar homes. You can find out the sale prices for similar homes in your area at www.zillow.com. Run a search for your area and select the “Recently Sold” option to view sale prices. Look for homes that recently sold in your neighborhood and are similar to yours in terms of square footage, number of bedrooms/bathrooms, and features, to figure out an approximate value of your home.

Zillow will also give you an estimate (called a “Zestimate”) of what it thinks the current market value of your home is based on the data it has in its system gathered from public records and information entered by users. Be aware, however, that this number could be way off. Zillow uses an automated system and cannot account for variations such as special features, location, maintenance needs, and market conditions.

Step 3

Take your home’s current market value and subtract your total mortgage debt. If you get a negative result, your mortgage is underwater.

As in the example above, say your total mortgage debt is $210,000. Based on your own research and after speaking to several real estate agents, you determine the likely market value of your home is $150,000. Take $150,000 and subtract $210,000. You get a negative $60,000. This tells you that you’re underwater by $60,000.

Possible Options If You’re Underwater

If you can still afford to live in your home (and you want to live there), being underwater shouldn’t necessarily have any effect on you. You can choose to stick it out and wait for your home's value to (hopefully) go up. Your home’s value will likely rise again eventually, and you’ll gain equity as you pay down the mortgage. However, this is typically only a good idea if:

  • you aren’t behind in your mortgage payments
  • you can afford to keep making the mortgage payments, and
  • you want to stay in your house for a while.

On the other hand, if you think you will have trouble keeping up with the payments (or are already behind in payments or are in foreclosure) or you need to move, you might want to apply for a loan modification, a short sale, or a deed in lieu of foreclosure. (For information about mortgage modifications, short sales, and deeds in lieu of foreclosure, see Nolo's Alternatives to Foreclosure area.)

An attorney can advise you about which option is best for your situation.

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