The Term Equity Explained

The Term Equity Explained



This is the word you want in your vocabulary when you’re looking for a home, when you own a home or when you’re selling a home. Equity is important because it shows the amount of the property that you actually own. A lot or a little, you definitely want to have equity in whatever property you have.

To explain this to you in numbers, equity looks like this:

Your home value = $200,000 (total)

Your down payment = $20,000 (your equity)

Your loan = $180,000 (not your equity)

Interest will play a factor, but let’s ignore that for a moment.

Whatever money you put down and whatever money goes in to the principal from your payment is all *essentially* money you are putting back in your pocket. As time goes on, that loan amount will decrease, causing your equity number to increase. 

There are other factors that might play a part in your equity increasing (or decreasing). The value of your home might fluctuate. If you live in a popular neighborhood near strong development the prices of the homes in your neighborhood could appreciate as time goes on, so because of this your home’s value has now increased without you even lifting a finger. This is good for you because if you decide to sell that house now, it may look like this:

Your down payment + what you’ve paid down on your loan = $20,000 + $80,000

Your loan now = $100,000

Your home value = $250,000

$250,000 – $100,000 = $150,000 in equity

This is why owning a home can be more profitable than renting. When you pay rent, your money is going into the owner’s pocket. When you own your home, you are placing money back into your own net worth.

If you’ve ever thought to yourself “There’s no way I could buy a house!”, don’t be so sure of that. There are a lot of mortgage options available for people from all walks of life. Let’s talk. I can put you in touch with a lender to find out if you are in a good position to buy your own home!

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