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

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