How to Sell Your Underwater House: Real Options

How to Sell Your Underwater House Real Options
by John Carlucci - October 19, 2023

Selling a house can be a daunting task, especially if you owe more on your mortgage than what the house is worth. However, there are options available to homeowners in this situation. With the right approach, it is possible to sell a house even if it is underwater.

If you find yourself in this situation, it's important to evaluate your financial situation and explore your options. By being proactive, you can successfully sell your home and move on to the next chapter of your life.

Key Takeaways

  • Understand what an underwater mortgage is and how it can impact your ability to sell your home.
  • Evaluate your financial situation and explore your options for selling your house.

What is an Underwater Mortgage?

An underwater mortgage, also known as having negative equity, is a situation where the outstanding mortgage balance on a home is higher than the home’s current market value. This means that the homeowner would need to pay to sell their house. Since some homeowners may be able to simply wait until the value of their home goes up, this is not necessarily a situation of financial distress. However, it is a serious situation for those who need to sell quickly.

An underwater mortgage can arise due to a decline in property values, especially when combined with a recent purchase and low down payment on the house.

One of the biggest challenges of having an underwater mortgage is that the homeowner cannot sell their home for enough money to pay off their mortgage. This means that they would have to come up with the difference out of their pocket.

However, there are some options available to homeowners who are underwater.

Evaluate Your Financial Situation

Before selling a house that is underwater, it is important to evaluate your financial situation. This will help you determine the best course of action and avoid making costly mistakes.

The first step is to calculate just how much you are underwater. Take the difference between the current mortgage balance and the value of the home. Is this an amount that you have readily available?

If not, consider what you can do to come up with the amount. Can you cut expenses, sell something, or earn extra income?

Explore Your Options

If none of the above are possible, explore these other options:

Loan Modification or Short Sale

A loan modification is a change to the terms of your mortgage that can make it more affordable. This can include a reduction in your interest rate, a longer repayment period, or a principal reduction. A short sale is when the bank agrees to let you sell your home for less than what you owe on your mortgage, and considers it as payment in full. Do some research to compare the two. Both of these options can be great if you have the time to go through the process required by your lender.

Selling "Subject To"

Selling "subject to" means that you sell your home, but the buyer takes over your mortgage payments. The title of the property is transferred to the buyer, but the mortgage remains in your name. This can be the best option if you're underwater and need to sell quickly, because you don’t have to sell at a loss or wait for banks to make any decisions. Use an underwater mortgage savings calculator to estimate how much you might save by selling this way. Of note, this option may only be available if your mortgage has a desirable interest rate.

Government Programs

Check for any government programs that may be available to you. Although some programs that have been in place are no longer available (such as the Home Affordable Foreclosure Alternatives (HAFA) program), there may be new programs. Usually, these are temporary solutions put in place to address national issues.


Foreclosure is the legal process by which a lender takes possession of a property when the borrower stops making payments. Foreclosure can have serious consequences, including damage to your credit score and the loss of your home. This is an option people usually want to avoid.


Exploring your options when you're underwater on your mortgage can be overwhelming, but it's important to take the time to consider all alternatives and then act. Some options may no longer be feasible the longer you wait, so being proactive can go a long way towards helping you sell your home and move on to the next chapter of your life.

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