Under water after purchasing a home

Flooding 2019 Mississippi river
Raspberry Island – underwater

It has been in the news lately about how some home buyers who bought houses in 2022 are “underwater” on their mortgages. In this case “underwater” means that borrowers owe more on their house than they could get for it if they sold it.

This scenario isn’t at all unusual. I will venture to say that most people end up owing more on a house than they can get for it if they sold it a few months after they bought it. This is especially true if the downpayment was low.

Home prices are still rising here in Minnesota. Maybe in six months or so those “underwater” homeowners will be above water again. Maybe it will take a year or even two.

The first payments on a thirty-year mortgage are mostly interest. People who bought their houses recently probably have low-interest rates which makes it easier to build equity. If you bought a house in St. Paul during the last two years and have somehow lost money on it you may have paid too much for it.

Being “underwater” doesn’t matter at all unless the homeowner has to sell. My advice has always been the same. Buying a house is a long-term commitment. People who plan on moving in the next few years should rent instead of buying.

If you think you may owe more on your house than what you owe on it and live in the metro area my advice is to keep calm and keep making those payments. If you can not make them due to job loss contact your lender immediately.

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