When it comes to real estate, there are few things more important
than equity. All of the advice given to first-time homebuyers centers
on how much equity they are likely to build in the time they will be
living in the home. Additionally, when it comes to getting a home
equity loan or selling the house, knowing how much equity you have
built up is quite important. It will determine how much cash you end up
with. And that is no small consideration.
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A Definition of Equity
Most
of the time, equity refers to the amount of “ownership" you have in a
particular piece of real estate. A set amount of cash is the main
expression of the equity in your property. Equity is usually built by a
combination of two things:
1. Making mortgage payments
2. Increases in the property’s value
The
longer you have the real estate, and make payments on it, the more
equity you are going to build up in the property. And if you live in an
area where the home values are increasing, you will find that helps
with your equity as well. This is the reason that the general advice is
to buy only if you plan to stay in a home for at least five years. This
gives the property time to appreciate, and it allows you the time to
pay down some of your property loan’s principal.
Determining Your Real Estate’s Equity
It
is usually very simple to figure out how much equity you have built in
your real estate. First, you need to find out what the current market
value of your home is. You can do this by talking to a variety of real
estate agents, mortgage loan officers, and appraisers. Next, you
subtract the amount that you still owe from the market value of your
home. The result is your equity. Here’s an example:
You bought
your home 11 years ago with a loan for $115,000. Now, however, the
property at current market value is worth $135,000. And you have paid
down some of your loan, still owing about $75,000. To figure your
equity, you subtract the $75,000 from the $135,000 for a total of
$60,000. This is about how much you could expect to pocket if you sold
the home at current market value, or the amount of money you would have
access to with a home equity line.
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Also, visit Home Equity Wise to find information about obtaining a
Home Equity Loan Online.
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