If a borrower purchased a home for $200,000, put $20,000 down, and borrowed the rest from a bank, what happens to the homeowner's equity if the value of house falls to $160,000?
A) the borrower has an equity in the property worth $40,000.
B) the borrower has zero equity in the home.
C) the borrower has negative equity in the home equivalent to $20,000.
D) None of the above.

Question

Quizplus · Accepted Answer

The homeowner's equity decreases as the value of the house falls below the amount borrowed. Initially, the homeowner had $20,000 in equity from the down payment. However, with the house value dropping to $160,000 and the initial loan amount being $180,000 ($200,000 - $20,000 down payment), the homeowner now owes more on the mortgage than the house is worth, creating negative equity of $20,000.

If a Borrower Purchased a Home for $200,000, Put $20,000