When the value of an asset secured by a debtor falls down below the outstanding balance exceeding the value of its loan then negative equity is achieved. Negative equity can be calculated by taking the value of the asset minus the balance of its outstanding loan. There are many factors that can lead to negative equity, and economic health plays major in this role.

What is negative equity and can it affect refinancing programs?

Negative equity or also coined as upside down can cause mobility loss in terms of assets and heavy psychological burden, and yes negative equity can majorly affect refinancing program.

There is no easy and quick solution to negate equity loss, but there are few things that you can do to enter refinancing programs even without equity.

  1. Estimate your remaining property value. There are many sites that offer this service for free. You can also hire an appraisal to do the estimate.
  2. Determine the level of your bankruptcy. If your debt is bigger than your house is worth, better ask for hardship program from your lender. Refinancing is close to impossible for this type of scenario, while hardship program can help reduce temporarily your massive debt obligation.
  3. Federal Housing Authority (FHA). If your house is covered by FHA, then you are qualified for their streamline refinance program. This way a much quicker and convenient refinancing service can be achieved. In addition, FHA Streamline Refinance does not obligate its members for an appraisal.
  4. Acquire Private Mortgage Insurance (PMI). PMI is an insurance company that protects its lenders from any default payments. They also encourage their lenders to finance assets that are loan to value (TLV).
  5. Finally, pay all your principal obligations. Liquidate assets, including your stocks, holdings, collectibles, and investments in order to pay your mortgages to nullify negative equity. Alternatively, you can also use a large tax refund to settle the mortgage.