What is a 'Home Debtor'

Home debtor is an old-fashioned term for any individual who takes out a mortgage in order to buy a home and has yet to pay it off. Today, we typically don’t distinguish between homeowners and home debtors, and call everyone who holds a property deed a homeowner, regardless of how much equity they have in their home.

BREAKING DOWN 'Home Debtor'

The term home debtor is particularly apt to describe those who will likely never be able to pay off their mortgage because of the costs associated with home ownership, such as property taxes, mortgage payments, insurance and necessary repairs. Unfortunately, millions of individuals fall into the category of home debtor, and with the high costs of owning a home, this term is often more appropriate than the commonly used word "homeowner." It is important for any person who is looking to buy a house to understand the underlying costs of the purchase and to ensure that they can afford to make the required payments.

According to Zillow Research, the typical American homeowner owes 62 percent of the value of their home, as of 2017, while a little more than one-third of all U.S. homeowners own their home free and clear. These people used to be home debtors, but now cannot be considered such, because they have paid off their mortgages. One’s degree of home indebtedness depends on many factors, such as the size of the mortgage initially taken out, how long one has been in repayment, and the state of the real estate market at the time of purchase. 

Home debtors who bought their home in the years before the 2006 highs in real estate prices, before the subsequent crash tend to face the highest levels of home indebtedness. Americans in the Generation X cohort were particularly hard hit, and therefore just 1.3 percent of mortgaged homeowners of that generation are close to escaping home debtor status. This level is similar to the millennial generation, even though Gen Xers have had more time to pay off their mortgages. 

Home Debtors and Underwater Homes

Home Debtors who owe more on their mortgage than their home will fetch on the open market are referred to as “underwater.’ The phenomenon of underwater home debtors became widespread in the aftermath of the bursting of the real estate bubble, when home values fell more than 33% nationally. As of 2017, more than 5 million American home debtors, or 10.4 percent of mortgaged homeowners nationwide, are underwater.
 

RELATED TERMS
  1. Debtor

    A debtor is a company or individual who owes money also often ...
  2. Home Equity

    Home equity is the calculation of a home's current market value ...
  3. Debt Fatigue

    Debt fatigue is when a debtor becomes overwhelmed by the amount ...
  4. Negative Equity

    Negative equity occurs when the value of real estate property ...
  5. Stipulated Judgment

    A Stipulated Judgment is a court decision ordering a debtor to ...
  6. Main Home

    A term used by the Internal Revenue Service (IRS) to define a ...
Related Articles
  1. Retirement

    Advisors: 5 Ways Clients Can Use Housing Wealth in Retirement

    Here are five, often overlooked, ways home equity can be used as a source of retirement income.
  2. IPF - Mortgage

    Mortgages vs. Home Equity Loans: How They Differ

    Mortgages and home equity loans both use your home value as collateral, but there are different advantages to each.
  3. Investing

    Home Improvement’s $64,000 Question: To Borrow, or Not to Borrow?

    With the surge in home prices, homeowners are gaining more equity. This not only stimulates more people to want to invest in their homes, but it also gives them easier access to home equity loans ...
  4. Investing

    5 Ways Overvaluing Your Home Can Hurt You

    Getting top dollar for your home is everyone's goal, but overvaluing your home can hurt its chances of being sold.
  5. Investing

    What Is the True Cost of Owning a Home?

    Buying a home is part of the American dream. But what happens when you add up all the costs associated with buying a home?
  6. Personal Finance

    Avoid Foreclosure: How To Handle An Underwater Mortgage

    Foreclosure is the biggest fear of any struggling homeowner. These tips just might save your credit rating.
  7. Investing

    Why You Shouldn't Pay Off Your Mortgage

    With today's historically low interest rates, it may make more sense to keep your 30-year mortgage.
  8. Investing

    Why You Shouldn't Buy a Start Home Now

    Buying a starter home now may not be the best investment with slow-growing equity and added costs.
RELATED FAQS
  1. How do I calculate how much home equity I have?

    Find out how to calculate the home equity in your home, your home equity percentage, and the loan-to-value (LTV) based on ... Read Answer >>
Trading Center