I have a question how can one possible owe more on a home than it is worth?

Question

i see that alot in real estate. but if a home is worth 700,000 how can you possibly owe 700,001? unless they are talking about and factoring the interest that has accrued.

Answer 1

Its easy, either

A.  The home fell in value, lower then what you paid

B.  You have taken out equity loans or multiple mortgages which push the value you owe more then the value of the house.

Very simply put, a house is NOT always worth what you paid.

Answer 2

Since the value of the home is determined by several factors (other houses in the area, the condition of the home etc.) it is easy to owe more than the house is worth.  What you owe on the house depends on what loan that you took out.  If you bought the house, say 2 years ago at 700,000 and the market crashes, your home could only be worth 500,000 now in the current market, but your loan amount does not adjust to account for the market.  

Answer 3

The first way a person can owe more than a home is worth is if the person bought the house 2 or 3 years ago before the housing market crashed.  A lot of property values have dropped.  Therefore a house that was worth $250,000 3 years ago might only be worth $190,000 now.  The person bought it when it was worth $250,000 and financed close to that amount and after paying on it for only 3 years would still owe close to that amount.  Therefore, they owe more than it's worth now.  The other way a person can owe more than the house is worth is if they got a 2nd and/or 3rd mortgage.  Some companies were offering to loan up to 125% of the value of the house.  People saw that thinking they could pay off other debts so they borrowed more than their houses were worth.

Answer 4

Hi, I you live in California, I would say that a high percentage of home owners currently owe more than a home is worth.  home values can and do go down.  Economic factors, Environmental issues.  In California the values are going down, in the boom say....8 yrs ago we bought a house in in 3 yrs it went up in value increasing it's worth by 75%.  Today is is back down in value to where we bought it.   3yrs ago our neighbors bought at 75% over where we bought.  today their house is worth the same as ours but they owe the bank more that what it is worth.  Their house went down in value.  

However, and interesting point to make, to buy the land and build the house today would cost in materials and labor more than the house is worth.

Answer 5

People owe whatever amount of money they were given.   They were given real cash, if the bank gave them 700,001 to buy the house that is what they owe, regardless of the houses actual value.

Answer 6

If the home is worth 700,000 you need to borrow more to cover fees and sh*t like that.

Answer 7

The "worth" is a theoretical value either of what the history of similar homes in your neighborhood sold for recently or a value placed ther by the taxman.

A home is only worth what someone will pay. if you bought a painting for $1000 because you loved the subject matter and how well the painter did it, but later found out when you went to sell it that style was unpopular and you could only get $600 for it no matter how hard you haggled what is it "worth?"

Unless the painter issued a guarantee, in money terms, it's only "worth" what you can get for it.