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What happens if you end up underwater on your mortgage?

On Behalf of | Sep 21, 2022 | Residential Real Estate |

Buying real estate can be an unpredictable and stressful process.  Most homeowners in Pennsylvania have to save for years to accumulate a significant down payment.  They will then leverage the capital that they have set aside when making an offer on a property.

In recent years, the demand for housing in Pennsylvania has risen significantly, leading to a seller’s market.  Prices soared, while buyers often found themselves competing with one another to have an offer accepted on a property.

If you recently purchased a property in Pennsylvania, do you have to worry about ending up underwater on your mortgage?

What is an underwater mortgage?

The principal balance on your mortgage is the total amount of the purchase price that you have yet to pay.  Given that many homeowners no longer make a 20% down payment, the amount that you owe could represent nearly the full value of the home.  Every payment toward your mortgage will decrease that principle balance and increase your overall equity.

If the market starts to contract, those who made competitive offers when real estate prices were at their peak could find themselves in a situation where they owe more on the property than they could recover if they listed the property for sale.  Homeowners in such situations sometimes need to make difficult decisions.

Currently, Pennsylvania is not among the states seeing the most significant downturns in the real estate market.  However, that possibility still looms on the horizon thanks to a combination of both inflation and increasing interest rates meant to save off that inflation.

How can you handle an underwater mortgage?

If you find yourself underwater on your mortgage and questioning whether you should continue making payments, there are several options available.  Occasionally, you may be able to negotiate with the lender to make some minor changes to your financing.  Other times, you simply need to commit to waiting as long as necessary for the market to recover.  After all, historically, home prices have tended to trend up over time, even if they occasionally drop significantly due to economic factors.

Reviewing your mortgage and keeping an eye on the housing market could help you protect your investment in a piece of residential real estate.


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Thank you for helping me out of such a deplorable situation. I appreciate all of your help and advice and dedication to your clients.
-Chanda, Philadelphia, PA