What steps should be taken, if any, when you find out your home's market value is underwater, i.e. worth less than the mortgage owed?
"Do you still enjoy living in your home? Can you afford the mortgage payments? Is there a reason for you to move, such as a relocation for work, or your third kid is on the way and your current house is already crowded with two? Those questions are more important than ""Is my home worth more than what I owe on it"". Ultimately, it's your home. You probably chose it for more than just its price, and those qualities should still make it valuable to you in some way beyond the monetary value which goes up and down with the market. You have a few options:" That's easy, keep making the payments and go on with life. The number that matters more than loan/market value is loan/equity. As long as you can sell it for enough to pay the balance on your loan you should be okay. Not saying it doesn't suck, but financially you are fine. If you owe more than the house is worth, I'd suggest paying it down as quickly as possible to fix that ratio to reduce your financial risk in case you lose your source of income. Personally, I think it is pretty slimy for people to walk away from house notes or try to short sell them when they can afford to continue payments just because the market value of the house fell.  How would you feel if, when house prices were skyrocketing, the bank canceled your loan and repossessed your house because they could resell it for more money? (not that they could realistically, just speaking hypothetically.) "I will echo the others; your home should be worth more to you than its market value. It is YOUR HOME. It's where you come home every day to your wife and kids, where you build a life. Yes it's an investment, but it's not like a stock or bond that you hold for a little while and then cash out for the profit. The one time you should be worried about being ""upside-down"" on your mortgage is if you're getting out. If you're moving to a new job at a new company in a new city, you have to make good on the remaining loan balance, and that won't all be from the sale of the house. Unless you're at that point however, if you can afford making the payments and have no reason to move or to cash in equity (of which you have none), then just keep making the payments. Hey, it's better than rent; you'll never see rent money again, while even if you're underwater, you're making headway with each payment." Step back and take a deep breath. Pay your mortgage. repeat 1 and 2 monthly until equity > mortgage.
You are weighting a certain cost of the mortgage interest versus the possible gain of the value of the house.   Take the interest you pay per month and divide it by the current value of the house.  Say your interest is 3% of the value of the house (may be more or less depending on the balance owed and the interest rate of your mortgage). Say the average appreciation in your area is also 3%. But that means that there's only a 50% chance that the actual appreciation will be more than that (assuming the odds are equal either way), and there's a 50% change that you'll be worse off.   Generally, trading a risk-free loss for a risky gain of equal size is not a good investment; you generally can find better average returns on risky investments, so your best bet is to sell now and pay of the mortgage. It's just possible that if you have your home appraised (probable cost a few hundred $), and the value is sufficiently higher than what the mortgage company is owed, that they will let this slide, since they are covered. Many banks, at least, allow secured lines of credit against the equity in your home, and allow the amount of the loan to increase if/as the value of the property goes up and your equity increases. However, I'd run this by the mortgage company before investing in the appraisal, since they may not be as flexible this way as the banks I've dealt with, and in any case it's a gamble unless you are certain of the value of your property. It's the physiological impact it has. If you took a loan to buy a home for $500k and you recently had it appraised for $450k you are more inclined to skip out on any home remodeling projects.   Also as ShakeyBobWillis pointed out it can be to your financial benefit to just walk away from an underwater mortgage. This creates even more glut in the marketplace. "To know if a stock is undervalued is not something that can be easily assessed (else, everybody would know which stock is undervalued and everybody will buy it until it reaches its ""true"" value). But there are methods to assess the value of a company, I think that the 3 most known methods are: If the assets of the company were to be sold right now and that all its   debts were to be paid back right now, how much will be left? This   remaining amount would be the fundamental value of your company. That method could work well on real estate company whose value is more or less the buildings that they own minus of much they borrowed to acquire them. It's not really usefull in the case of Facebook, as most of its business is immaterial. I know the value of several companies of the same sector, so if I want   to assess the value of another company of this sector I just have to   compare it to the others. For example, you find out that simiral internet companies are being traded at a price that is 15 times their projected dividends (its called a Price Earning Ratio). Then, if you see that Facebook, all else being equal, is trading at 10 times its projected dividends, you could say that buying it would be at a discount. A company is worth as much as the cash flow that it will give me in   the future If you think that facebook will give some dividends for a certain period of time, then you compute their present value (this means finding how much you should put in a bank account today to have the same amount in the future, this can be done by dividing the amount by some interest rates). So, if you think that holding a share of a Facebook for a long period of time would give you (at present value) 100 and that the share of the Facebook is being traded at 70, then buy it. There is another well known method, a more quantitative one, this is the Capital Asset Pricing Model. I won't go into the details of this one, but its about looking at how a company should be priced relatively to a benchmark of other companies. Also there are a lot's of factor that could affect the price of a company and make it strays away from its fundamental value: crisis, interest rates, regulation, price of oil, bad management, ..... And even by applying the previous methods, the fundemantal value itself will remain speculative and you can never be sure of it. And saying that you are buying at a discount will remain an opinion. After that, to price companies, you are likely to understand financial analysis, corporate finance and a bit of macroeconomy." Banks don't want to manage property.  They despise the fact that they have all of these foreclosures that they can't sell.  They just want to loan you the money at X% and collect the fees and interest. The value of a reverse mortgage to the lender is that it's a collateralized loan against a property.  When the owner exits the property, it's attached to the property and must be paid back before the property is sold.  They carefully consider the age of the recipient, equity in the property, etc. when they decide how much to pay the owner so that the chances of the loan going underwater are minimized. You're not responsible for the mortgages on the property - those are agreements between the lender and the borrower. The risk you have is that the title search missed something.  If the seller (i.e., the bank or banks who foreclosed) did not have full rights to sell the property, and there was another party who had a lien on the property or had an interest in it in some fashion, that party could make a claim that would interfere with your purchase.  You wouldn't be responsible for the loan, but you might not end up with the title to the property if that happened. Simply if your stock is still rising in price keep it. If it is falling in price sell it and pay off your mortgage. To know when to do this is very easy. If it is currently rising you can put a trailing stop loss on it and sell it when it drops and hits your stop loss. A second easy method is to draw an uptrend line under the increasing price and then sell when the price drops down below the uptrend line, as per the chart below.  This will enable you to capture the bulk of the price movement upward and sell before the price drops too far down. You can then use the profits (after tax) to pay down your mortgage. Of course if the price is currently in a downtrend sell it ASAP. Dan - there are other choices. What rate do you have on this mortgage? And what is the value of the home? With a bit of patience and effort, you may be able to lower your rate and save some portion of that $100k you think you can grab.  There is no factual answer here. The negative will show for 7 years, and only you can determine whether that's worth it. If in that time the value comes back you may very well be in a worse position, looking to buy a new home that's now well above where it is today. It's possible the current prices are overshooting on the downside, if unemployment drops and consumer confidence returns, you may be back to break-even sooner than you think. As an aside, I find it curious that the Trumps of this world can manipulate the system, creating multiple entities, filing for bankruptcy, yet protecting his own assets, and his wealth is applauded. Yet, asking the question here so many attack you, verbally. The Donald has saved himself billions through his dealings, I don't judge you for asking this question when it comes to $100k. When Trump's net worth was negative, he should have had his property taken away, and been handed a broom. tl;dr: when everything is going great, it's not really a problem. It's when things change that it's a problem. Finally, home loans are extended over extremely long periods (i.e. 15 or 30 years), making any fluctuations in their value short-lived - even less reason to be obsessed over their current value relative to the loan. Your post is based on the assumption that you never move. In that case, you are correct - being underwater on a mortgage is not a problem. The market value of your house matters little, except if you sell it or it gets reassessed. The primary problem arises if you want to sell. There are a variety of reasons you might be required to move: In all of these scenarios it is a major problem if you cannot sell. Your options generally are: In the first option, you will destroy your credit. This may or may not be a problem. The second is a major inconvenience. The third is ideal, but often people in this situation have money related problems. Student loans can deferred if needed. Mortgages cannot. A car is more likely to be a lower payment as well as a lower amount underwater. Generally, the problem comes when people buy a mortgage assuming certain things - whether that's appreciation, income stability/growth, etc. When these change they run into these problems and that is exactly a moment where being underwater is a problem. "The first red-flag here is that an appraisal was not performed on an as-is basis - and if it could not be done, you should be told why. Getting an appraisal on an after-improvement basis only makes sense if you are proposing to perform such improvements and want that factored in as a basis of the loan. It seems very bizarre to me that a mortgage lender would do this without any explanation at all. The only way this makes sense is if the lender is only offering you a loan with specific underwriting guidelines on house quality (common with for instance VA-loans and how they require the roof be of a certain maximum age - among dozens of other requirements, and many loan products have their own standards). This should have been disclosed to you during the process, but one can certainly never assume anyone will do their job properly - or it may have only mentioned in some small print as part of pounds of paper products you may have been offered or made to sign already. The bank criteria is ""reasonable"" to the extent that generally mortgage companies are allowed to set underwriting criteria about the current condition of the house. It doesn't need to be reasonable to you personally, or any of us - it's to protect lender profits by aiding their risk models. Your plans and preferences don't even factor in to their guidelines. Not all criteria are on a a sliding scale, so it doesn't necessarily matter how well you meet their other standards. You are of course correct that paying for thousands of dollars in improvements on a house you don't own is lunacy, and the fact that this was suggested may on it's own suggest you should cut your losses now and seek out a different lender.  Given the lender being uncooperative, the only reason to stick with it seems to be the sunk cost of the appraisal you've already paid for. I'd suggest you specifically ask them why they did not perform an as-is appraisal, and listen to the answer (if you can get one). You can try to contact the appraiser directly as well with this question, and ask if you can have the appraisal strictly as-is without having a new appraisal. They might be helpful, they might not. As for taking the appraisal with you to a new bank, you might be able to do this - or you might not. It is strictly up to each lender to set criteria for appraisals they accept, but I've certainly known of people re-using an appraisal done sufficiently recently in this way. It's a possibility that you will need to write off the $800 as an ""education expense"", but it's certainly worth trying to see if you can salvage it and take it with you - you'll just have to ask each potential lender, as I've heard it go both ways. It's not a crazy or super-rare request - lenders backing out based on appraisal results should be absolutely normal to anyone in the finance business. To do this, you can just state plainly the situation. You paid for an appraisal and the previous lender fell through, and so you would like to know if they would be able to accept that and provide you with a loan without having to buy a whole new appraisal. This would also be a good time to talk about condition requirements, in that you want a loan on an as-is basic for a house that is inhabitable but needs cosmetic repair, and you plan to do this in cash on your own time after the purchase closes. Some lenders will be happy to do this at below 75%-80% LTV, and some absolutely do not want to make this type of loan because the house isn't in perfect condition and that's just what their lending criteria is right now.  Based on description alone, I don't think you really should need to go into alternate plans like buy cash and then get a home equity loan to get cash out, special rehab packages, etc. So I'd encourage you to try a more straight-forward option of a different lender, as well as trying to get a straight answer on their odd choice of appraisal order that you paid for, before trying anything more exotic or totally changing your purchase/finance plans." I wish this was the case in Canada.  I lost about 60k on my home in one year and have to sell now to move for work.    In the US I could simply default and the bank takes the loss.  In Canada if I default, CMHC pays the bank, then I'm sued by CMHC and stuck with the bad debt.    Simply put - here the onus of repayment is on the lender, not the lending institution.  It sounds good until you are the one looking at losing your shirt. "Time for a lawyer. Essentially, regardless of the situation ""it's not right"" for him to be paying the mortgage and only get half the value out of the equity in the house. All other things aside, no court I can think of would allow that. The ""could happens"" are many, but the most common include; Keep in mind that if he keeps paying the mortgage ling enough most courts will end up giving him ownership outright. Essentially, they will say he has already bought her out by paying her half of the debt.  Unfortunately, any way he goes he is going to need to take action. When there is a missed mortgage payment, a bad tax year, or some other legal issue (some one is injured on the property), the last thing he is going to want is for the courts to decide the issue for him. For example, John breaks an arm while climbing a tree on the property line. John takes the owners of the property to court. ""He"" says ""but my sister owns half"" and the courts decide then and there that because he's been paying the mortgage alone he owns the house alone. Seems like a win, except now he owns the liability alone, and owns John $1,000,000 for a silly lawsuit alone.  Point is this. Ownership of property comes with risks and responsibilities. ""He"" really needs to get those risks and responsibilities under control so he can mitigate them, or he could end up in a very nasty situation in the years to come." Another vote for a bigger downpayment, for the reasons Benjamin mentions. Also, from experience, I would save up at least a small pile as a separate house emergency fund because you will find things that are wrong and/or that got bodged by the previous owner and it's probably not going to last past the first few months of home ownership. In my case, the home inspector missed - amongst other things - that the shower on the 2nd floor was leaking both into the adjoining bedroom and the living room below. That added a little unexpected expenditure as you might guess. It really is a stupid term.  What comes to mind with the term underwater?  drowning, sunk boats, cars and other property and flooding. All really stressful and damaging.   Underwater in mortgages, means you owe more than your house is worth, .... ER your home's value dropped below the value of your mortgage.  It does suck but  it doesnt mean they are behind on their mortgage and doesnt suck as much as people who are behind.  it isnt really something to worry about except for the future when you resell. For a lot of people it is just something they can ignore.   In theory, they should get a lower tax bill.   Underwater just seems like an odd term for something like your home value dropping below the price your paid for it. If you buy a new car, you can pretty much claim to be underwater as you drive it off the lot, because your car simply isnt worth what you paid for it the second it becomes used.  not saying it isnt an interesting stat, or that it is of no concern, it's just an odd term.  To me it is more fitting for people behind in their payments than for people whose property lost value.  (and yeah i get it is more dire for investors and somewhat for landlords but not always) If you truly have > 22% equity, they have to stop it.  However, without an appraisal, how do you know if you have > 22% equity?  If you bought the house for 100k, and paid your mortgage down to 78k, but now the house is only worth 78k, you have 0% equity, not 22% equity.  Without an appraisal, you have no idea how much equity you have. Yeah, it sucks, but that's how equity is calculated: based on the current value, not the past value.