A family purchases a home for $400,000, making a down payment of 5% of the purchase price and taking out a loan for the remainder. By what percentage would the home's value need to fall to completely wipe out the family's initial ownership stake (equity)?

Impact of Leverage on Homeowner Equity

A 15% decrease in the market value of a home will result in negative equity for any homeowner whose initial down payment was less than 15% of the purchase price.

Leverage and Equity Risk

Match each homebuyer's initial down payment percentage with the minimum percentage decline in their home's market value that would cause their loan balance to exceed the home's new value.

Comparing Financial Risk for Homebuyers

An individual purchases a $500,000 home, making a 10% down payment and financing the rest. If the market value of the home subsequently falls by 15%, the owner's negative equity would be $____. (Enter a number without commas or symbols).

Two individuals purchase homes just before a market downturn where all property values fall by 15%.

• Person A buys a $600,000 home with a 20% down payment.
• Person B buys a $300,000 home with a 10% down payment.

Which of the following statements accurately describes their financial situations after the market downturn?

A homebuyer purchases a property with a very small down payment, financing the vast majority of the price with a loan. Shortly after, the local real estate market experiences a significant downturn. Arrange the following events in the correct causal sequence that leads to the homebuyer's financial stake in the property becoming negative.

Evaluating Homebuyer Risk