Finance
A Minnesota borrower wants to refinance their home. The lender requires a new appraisal. The property appraises for less than the outstanding loan balance. This situation is called being:
AUpside down (underwater) on the mortgage✓ Correct
BIn default on the mortgage
CSubject to a short sale requirement
DIn violation of the mortgage terms
Explanation
When a property's value is less than the mortgage balance, the borrower is 'underwater' or 'upside down' on their mortgage. This makes refinancing difficult because there is insufficient equity.
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Key Terms to Know
Short Sale
A sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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