When weakness begins to form in the housing market, the foreclosure rate tends to go up. However, there is a chance that the current downturn in residential real estate values may not spell trouble for as many Illinois homeowners. This is primarily because the rise in home prices that occurred between 2020 and the first part of 2022 means that they likely have equity in their homes.
What is equity?
Equity is the value in the home that remains after taking a mortgage into account. Let’s say that your house was recently appraised for $150,000 and it has a mortgage of $100,000. In such a scenario, you would have $50,000 in equity. It’s worth noting that you can have negative equity in a home as well. If your house was worth $100,000 but had a mortgage of $150,000, you would be underwater on the loan by $50,000.
The importance of equity
If you have equity in your home, you’re more likely to make payments on time even if it may put a strain on the rest of your budget. It also means that you are more likely to work with your lender if you can’t adhere to existing mortgage terms. If necessary, you could sell the home as a form of foreclosure defense, and even if it’s sold for less than it is currently worth, you may still walk away with a profit.
Contacting your lender is generally the best option if you’re concerned about the status of your mortgage. A representative may be willing to renegotiate the terms of your loan or take other actions to help you avoid foreclosure. Selling the home or filing for bankruptcy may also make it possible to keep your home from being repossessed by the lender.