How to Sell Your Home When You’re Underwater on Your Mortgage

It’s no fun selling a home when you’re underwater on your mortgage. Being “underwater” is when you owe more on your mortgage loan than your home is worth.

Unfortunately, there are times when homeowners have no choice. Your employer might transfer you to a new job across the country. Or your home might be too small for a growing family. If you’re in this situation, the odds are high that you’ll have to write a check to your lender once your home sale closes. But you might be able to reduce the amount you owe by setting the right asking price and staging your home so that it looks its very best. Here’s how to sell your home when you’re underwater on your mortgage.

The challenge

Why is selling a home with negative equity such a financial hit? Instead of making money on your home sale, you’ll lose it.

Say you owe $200,000 on your mortgage, but your home is worth only $180,000. You’ll struggle to sell your home for more than that $180,000 value. And even if you do sell at that figure, you’ll still owe your lender $20,000 after you close your sale. This means you’ll have to write your lender a check for $20,000 at closing. That’s not the outcome any home seller wants.

Wait to sell

What if you are underwater on your mortgage? The best advice is to hold off on selling your home, if possible. That way, you can hope that your home gains value — hopefully enough so you no longer have negative equity.

You can also wait until you make enough monthly mortgage payments so you no longer owe more on your home loan than it’s worth. If you can send extra money to your lender to be applied directly to reducing your loan’s principal balance, you might be able to build equity at a faster pace.

It’s becoming less and less common

The good news is that the number of homeowners who are underwater on their mortgages is falling, compared to what it was a few years ago. CoreLogic reported that in the first quarter of 2018, the number of homes with negative equity had fallen 3 percent to under 2.5 million, which represents 4.7 percent of all properties with a mortgage.

How to set the right asking price

If you have no choice but to sell, the key is to set the right asking price for your property. If you’re underwater, you might want to set an asking price that’s higher than what the market says your home is worth. Resist this temptation.

Buyers know what a home is worth today. If you set your asking price too high, most will pass your home by, looking at other properties instead. You can’t force buyers to pay more for your home because you’re underwater, because buyers don’t care what you originally paid for your home.

You need to set an asking price that’s fair, but also the highest possible amount you can sell it for. The best way to find this price is to work with a real estate agent who is familiar with your neighborhood. They can help you set an asking price that draws the biggest number of potential buyers, increasing your odds of selling your home for the highest price.

Staging your home

If you’re underwater and plan to sell, you’ll want to spend the least amount of money possible to sell your home. But investing in a home stager can pay off. A stager will rearrange your furniture and home décor so that your home looks more spacious, bright, and airy. This will help your home make a strong first impression on buyers. You want buyers to be excited about your home and to make offers that are close to your listing price.

Make all necessary repairs

In order to sell your home, you’ll have to repair any broken appliances, torn carpets, dinged walls, or stuck windows. You can’t list your home with any defects if you expect buyers to pay top dollar for it.

Don’t forget the outside

Spend time on your home’s exterior, too. Make sure the lawn is neatly trimmed, all weeds are pulled, and you add pops of color with some bright plants. You want buyers to be excited when they pull up. If they see a well-maintained and inviting exterior, they’ll be more eager to tour the inside of your home.

The key here is to squeeze the highest possible offer out of buyers. To do that, your home must be in top condition, both inside and out.