Home is Worth Less Than I Paid - What Happens When I Sell?

Reader Question: I purchased my home in Sept. 2008. I bought it for $162,000.00 and put down $14,000. I still owe $148,000 on the loan. If I sell it for $155,000 (which is less than I paid), do I have to pay the entire $7,500 back?

In this situation, you started out with equity in your home by putting down a down payment. What you started out with as a mortgage was, in your case, $14,000 less than what the home was valued at. The difference between those figures (loan -vs- value) is called equity.

As a home's value increases, so does the amount of equity the homeowner has in the property. In your case it seems the value of the home has dropped, which has resulted in a drop in your equity. The good news is you did put money down on the home so you may not find yourself in a negative position during a sell.

If you only owe $148,000 but need to sell for $155,000, you still have $7,000 worth of equity in your home. Yes -- you will lose that additional $7,000 put down when you purchased the home a few months ago. And you may stand to lose some of the remaining $7,000 of equity if you need to pay a real estate agent(s) commission at closing, or if you are required to pay some of your buyers closing costs.