eli5 What does it mean to be “upside down” on your home loan and how does it happen?
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It means that your home’s value is less than how much you owe on it. “Upside down” is also referred to as “underwater”, “negative” or “negative equity”. If you were to sell said house, you would still owe the difference.
For example, house that you have a loan at is appraised at $200k, but your loan payoff amount is $250k. That means if you sell the house you’ll be “upside down” – meaning negative – $50k. You would still owe that remaining $50k.
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