What is Negative Equity?

When a homeowner owes more on their mortgage than what the home is worth, the home is referred to as “upside down.”  The amount of the mortgage over and above the value of the home is called negative equity.

Why is negative equity so important these days?

Let's say you are selling a home that is worth $175,000 with a mortgage balance of $200,000.  You owe more than the home is worth, to the tune of $25,000 of negative equity.  If you were able to sell this home, you'd have to bring at least $25K to the closing in order to sell your home.  That's right: You'd have to pay money to sell your own home!  And that's not counting any commissions you might owe to a real estate agent.