Home Equity Basics

By owning your own home, equity allows you to build wealth through time. Homeowners are responsible for maintaining the house after the mortgage closes, but it’s not for nothing. Home equity builds with each payment made towards your mortgage and the value of comparable sales in your neighborhood.

Home equity is the value of your home beyond how much money is owed. If your home is worth $350,000 and $300,000 is owed, you have built $50,000, or 14%, home equity.

Equity can be calculated in many ways, including down payment at the time of purchase, loan amount, appraisal value, paying toward principal, and depreciation.  

Home equity can be used as a loan through a Home Equity Line of Credit (HELOC) or a home equity loan. Lenders usually won’t allow borrowers to mortgage more than 80% of their home’s total equity, but what can be borrowed can be used for a variety of things. Some borrowers use the money to pay off credit card debt, school tuition, taxes, and more. 

Though equity generally rises over time, sometimes, depending on the market value of your home, equity can go negative. If your $350,000 home dropped in value to $280,000 due to an economic decline and if you still have a $300,000 mortgage, the equity will be negative by $20,000. A payment in full would be required to bring the equity to a break-even point. If you are not planning on moving soon, this wouldn’t be an issue, but if you are looking to sell your house, it can be difficult to manage the difference. 

Increasing your home equity involves paying down your mortgage and making minor or major repairs such as replacing your garage door, adding stone veneer, refreshing your kitchen or bathroom, resurfacing the driveway, replacing flooring, painting, roof repair, etc. 

Home equity is important for increasing your wealth and dramatically increasing the value of your house. As long as you don’t overspend on remodeling and know all the fees and costs associated with your loan, your equity can grow substantially.

Looking to buy or sell your home or commercial property? Or perhaps you’re thinking about a Home Equity Line of Credit (HELOC) or a home equity loan to pay down debt or make renovations? EB Mortgage offers the best rates for traditional and specialty lending. Contact us to learn more.

________________________________

EB Mortgage is a locally owned mortgage company with experts in new home purchase, refinancing, and commercial loans. Our wholesale rates can’t be beaten. We offer more products, more options, and more solutions. Our “3C” Process is simple: complete our pre-approval request, consider options based on your requirements, and choose the offer that suits your needs best. Call us or e-mail us today! 

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/