More homeowners underwater with home loans across US

The plight of underwater mortgages is causing a sinking financial feeling for many homeowners nationwide.

A recent report from ATTOM, a real estate analytics firm, revealed a 0.5% increase in the total number of mortgages, 3.2% overall, considered underwater during the second quarter of 2026. That figure stood at 2.7% at the same time last year.

Mortgages are classified as such when the debt remaining on a home loan exceeds the home’s market value by 25% or more. Negative home equity leaves homeowners stuck, typically unable to refinance or sell without taking a loss.

Minnesota was found to be the state with the largest jump in homes labeled “seriously underwater,” rising to 12.1% from just 2.6% a year prior. South Dakota hit 5.7%, an upswing from 3.1% last year, while Iowa saw its rate climb from 5.8% to 7.9%.

“Underwater mortgages have typically been concentrated in the climate-exposed Gulf and coastal states, and those actually improved this cycle,” said Mujahid Merchant, a mortgage researcher who commented on the report.

“Across the country, the common characteristics of states with large underwater concentration is a prevalence of low-equity-at-origination mortgages that hit the books in 2022 or later, reflecting both a late-cycle purchase and down-payment comprehension.

Interest rates moving back up after the COVID pandemic were offset by those home buyers who took advantage of FHA loans, which can allow for a down payment of a paltry 3.5%.

States found to be going the opposite way when it comes to underwater mortgages include Louisiana, which dipped from 11.9% to 10.3%; Kentucky, down to 5.7% from 7%; North Dakota now at 4%, one point lower than last year; Oklahoma, dropped slightly from 5.6% to 4.7%; and New York which fell 0.5% to 1.5% overall.

“For coastal markets that saw steep appreciation, this created little issue,” Merchant said. “Subsequent rapid price growth offset the low initial equity. But that hasn’t been the case for Midwestern states, which have seen much lower appreciation.”