What is equity anyway?

You hear people talking about building EQUITY in a home, and you’re like…what is equity, anyway?

Equity is the fair market value of a home minus the total lien amount on the property.

If you could sell your home today for $300,000 and you owe $200,000 on it through your mortgage, you have $100,000 in equity.

SWEAT equity is when you put work into your home to build the equity more quickly. For example, you renovate the kitchen using cash and your hard work, which brings the value of your home up to $325,000, and you owe $200,000 on the mortgage, you have $125,000 in equity.

How do you build equity over time? When you pay your mortgage, you are paying four primary things…Principal, Interest, Taxes, and Insurance. The principal is the original amount borrowed from the lender that needs to be repaid, in addition to all the other costs of borrowing that amount. The principal is paid monthly over the term of the mortgage. As you pay that balance down, THAT is your equity.

That being said, if you choose to sell your home, there ARE some other expenses that you will incur in order to sell the property, including taxes, fees for your REALTOR, repairs, common fees a seller will pay on the buyer’s behalf, etc, so you will want to get an expert’s opinion on how much you will NET when you sell. The NET amount will be the current market value of the home, minus the expenses of sale, minus the mortgage/lien payoff amount.

Are you interested in how much equity you have in your current home? Fill out the form below and I will be in contact to help!