What to Do if You’re Upside-Down in a Home Loan

Reed Pirain

It’s one of the scariest situations a homeowner can find themselves in.

When a person owes more than their house is worth, the phone calls begin. Mortgage companies try to get owners on track while owners try to find more time, more money, or both. Some end up facing eviction or repossession. Others may be forced to sell without having a place to go.

Reed Pirain explains that the number of homeowners who find themselves upside-down on a loan — also called “underwater” or holding “negative equity” — fluctuates year-to-year and state-to-state.

Recent analysis from Redfin estimates that if the value of homes drops around 4%, the expected figure, by the end of 2023, around 3.5% of homeowners who purchased property between 2021 and 2022 will find themselves underwater.  

However, that’s a lower figure than the reported 6.2% who were underwater with their mortgage by 2020, according to Attom Data Solutions. 

Here’s some advice and a few possible approaches a homeowner should consider if they find themselves underwater or fear that they might be soon. 

Don’t Panic

First thing’s first: Determine whether a mortgage is actually underwater. Sometimes, homeowners are overreacting to a slight change in home value or scary economic reports.

First, look to see how much is still owed by reviewing the latest mortgage statement. Next, pinpoint the actual value of the home.

Estimates on real estate sites are rarely accurate. Instead, talk to a trusted real estate agent or have an appraiser give a professional estimate.

Once those two figures are acquired, simply subtract what is owed from the current value of the home. For example, if $250,000 is owed on the mortgage but the value is $235,000, that’s a relatively low underwater rate of $15,000.

Stay Put 

A homeowner discovering that they are underwater is often not reason enough to give up hope and leave the home. Depending on location, homes are often likely to see increases in value if a homeowner decides to stay in the home and continue to pay off the mortgage as usual.

Circumstances often change. Home values rise in areas deemed trendy or cities that are welcoming new companies. The economy may improve, and inflation could ease (there are usually notable economic peaks and valleys within even just a year).

In this respect, homeowners effectively ride out the market and see their homes slowly build equity again.

Reed Pirain


When more is owed on the home than what it’s worth, refinancing through a lender may prove challenging. Another option is qualifying for the HARP program, which helps owners refinance when they’re upside down.

There are some qualifying rules, such as paying one’s mortgage on time for the previous six months and others for those who started a loan before May 2009.

Other refinance options include the Enhanced Relief Refinance program offered by Freddie Mac and the High LTV Refinance Option from Fannie Mae.

Try a Short Sale

In a short sale, foreclosure is avoided when a lender accepts less for a home than what’s actually owed, effectively swallowing a loss. It’s not the best situation for homeowners either, as the short sale usually drags down their credit score.

Reed Pirain
Reed Pirain