Question 1

What does it mean to be underwater on a mortgage?

Accepted Answer

It means you owe more on the loan than the home would sell for today. Selling through a normal listing would leave you short — after paying off the loan and covering the agent commission and closing costs, you'd owe money at closing instead of walking away with cash.

Question 2

What are my options if I'm underwater on my mortgage?

Accepted Answer

Common paths include staying and paying it down until values recover, a short sale (the lender agrees to accept less than what's owed), a deed-in-lieu of foreclosure, or selling subject-to — where a buyer takes over the payments without the loan needing to be paid off at closing at all, which sidesteps the shortfall a normal sale would create.

Question 3

How is the equity gap calculated?

Accepted Answer

Mortgage balance minus the home's current value. A positive number is a shortfall (underwater); a negative number means there's equity, not a gap.

Question 4

Why does a subject-to sale help an underwater seller?

Accepted Answer

It removes the seller from a payment they may be struggling with without requiring the loan to be paid off — since the loan stays in place and the buyer takes over payments, the seller isn't forced to cover a shortfall out of pocket the way a traditional listing sale would require.

Underwater Mortgage Calculator