Equity

What Does "Equity" Mean In Real Estate?

Equity is the market value of real property, less the amount of any liens that may exist. It could also be explained as the financial interest that a homeowner has in a property. A more in-depth explanation of home equity can be outlined as the percentage of your home that you own. This is the part of the home that you have an interest in. You might consider yourself a homeowner -- but more than likely, you do not own the property free and clear. For most people, it is not possible to purchase a home without borrowing money to do so. When this happens, the lenders as well as you will have an interest in the property until any and all loans are paid off, when it becomes yours entirely. Here is an example of what home equity looks like. Let us pretend that you purchased a home for $200,000. When you made the purchase, you put down 20 percent as your down payment. In order to pay for the rest, you got a loan from a mortgage lender. This means that from the start of your purchase, you have 20 percent equity in the home’s value. The formula to see equity is your home’s worth ($200,000) minus your down payment (20 percent of $200,000 which is $40,000). You only own $40,000 of your home. Another way to think about home equity is to consider how much is owed instead of how much has been paid. Building equity in your home happens as you repay your mortgage loan. Every time you make your monthly payment, you pay interest plus a small portion of the balance of the loan (the “principal”). As your balance decreases, the equity you have increases. Equity can also increase if your home’s value increases. What can you do with your home equity? Equity is considered as an asset and is included in the total figure of your personal net worth. Therefore, you can use it for whatever you feel necessary. Some examples of popular uses for home equity are to purchase a new home, to pay college expenses for your children, to purchase a new car, for vacations or even for your daughter’s dream wedding. This money should be used wisely because it is an important asset to you. A home equity loan is also known as a second mortgage. Some may think that having this money at your fingertips is a good thing, but you should also be aware that it can be a dangerous thing as well. When you get a home equity loan, your home serves as collateral for the loan. If you fall behind on your payments, it is possible that you could lose your home due to foreclosure. All homeowners are proud of their homes. You should be very careful and responsible with your home equity. Be sure to ask questions and be sure that you understand exactly what home equity is if you consider leveraging it for a loan or another purpose. Related real estate articles on Equity:
Back to top
New January Connect speakers added: M. Ryan Gorman, Josh Team, Glenn Kelman and more.SEE THE SPEAKERS×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.