Even though it sounds a little complicated, the term ‘underwater’ is not as difficult as it might appear at first. Underwater (alternative options include “upside down”) means that you owe more on your current mortgage than your actual home is worth.

Even though it is a relatively simple concept, the truth is that it is not nearly as fun or innocent as the term ‘underwater’ makes it sound. Millions of homeowners across the country have found that their homes have gone down in value in recent memory.

How did this happen?

The reason that many homes are ending up ‘underwater’ is the housing bubble bursting. Too many people were buying homes at the same time, partially because of the easy financing options that they were being given at the time.

Because the demand increased, the prices for real estate went up drastically as well. People were making money in real estate, meaning that the demand kept going up – causing prices to skyrocket even higher than before. This led to a home costing far more than it would in a traditional, normal housing market.

Many people were buying a home, sometimes homes that they were unable to afford. This led to the prices becoming too high, because the situation was unsustainable over the long term.

An example of a home being underwater

Someone may have bought a home for $300,000 and has taken out a $260,000 mortgage. However, the market is sliding, bringing the value of the home to $220,000 after several market downturns. This means that the home is now considered ‘underwater’, because the home is only worth $220,000, despite the fact that the owner still owes $260,000 mortgage on the house. Another way of looking at this is saying that the homeowner now has negative equity.

About Jayson Lutzky, P.C.

Jayson Lutzky is an attorney with over 31 years of experience practicing law. He handles personal bankruptcies and helps people in debt and families facing foreclosure. His office is located in the Bronx, New York, just one block from the 4-train’s 183rd Street stop. Call 718-514-6619 to schedule a free in person initial consultation. Visit www.MyNewYorkCityLawyer.com to learn more about Mr. Lutzky’s practice.