Underwater Mortgage


DEFINITION of 'Underwater Mortgage'

A home purchase loan with a higher balance than the free-market value of the home. This situation prevents the homeowner from selling the home unless s/he has cash to pay the loss out of pocket. It also prevents the homeowner from refinancing in most cases. Thus, if the homeowner wants to sell the home because s/he can't afford the mortgage payments anymore, perhaps because of a job loss, the home will fall into foreclosure unless the borrower is able to renegotiate the loan.


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BREAKING DOWN 'Underwater Mortgage'

Underwater mortgages became commonplace in the aftermath of the 2000s housing bubble burst, and, combined with a bad economy, resulted in numerous foreclosures. In nonrecourse states, where mortgage lenders can't pursue borrowers for more money once their homes have foreclosed, many borrowers who could still afford their mortgage and other bill payments strategically defaulted on their underwater mortgages because they believed they were cutting the losses from a bad investment.

  1. Foreclosure - FCL

    A situation in which a homeowner is unable to make principal ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Delinquent Mortgage

    A mortgage for which the borrower has failed to make payments ...
  4. Bank-Owned Property

    Properties that are taken into a bank's inventory, after a foreclosure ...
  5. Subprime Borrower

    A person who is considered a higher-than-normal credit risk. ...
  6. Mortgage Application

    A document submitted by one or more individuals applying to borrow ...
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  1. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  2. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  3. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
  4. Are FHA loans assumable?

    Loans insured by the Federal Housing Administration (FHA) on or after Dec. 15, 1989, are assumable by qualifying borrowers. ... Read Full Answer >>
  5. How accurate are online mortgage calculators?

    Online mortgage calculators are accurate to the extent that the calculator itself is asking for the right pieces of information ... Read Full Answer >>
  6. Are mortgage rates negotiable?

    Mortgages are just as negotiable as any other product or service. Whether it's a new home purchase or refinancing of an existing ... Read Full Answer >>

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