Equity is one of the most common terms you hear when working with a real estate agent, especially if you are selling your current home. However, not everyone knows what it means or how to use it. When looking for a new home, knowing what equity is and how it works for you is one of the key factors in figuring out how much you can afford to spend on your next house. Make sure you understand the value of this term (and your home) as you search for your dream house!
Equity, as described by Bankrate, is the portion of your home that you’ve paid off, or what your stake is in your property versus the lender. When you first purchase a home, you only have as much equity as you spent on your down payment, however the more payments you make, the more money goes toward your principal home balance. According to Keeping Current Matters, 68.1% of Americans have either paid off their mortgage or have at least 50% equity in their home right now, however many homeowners often do not realize how much equity they have acquired. In fact, if a home has been recently appraised at a higher amount than you originally paid for it, the amount of equity you have in your home could be even higher than originally thought.
So how is this information useful? Having equity in your home not only means that you gradually become the sole owner of your property, but you also have another option to help yourself pay off debt via home equity loan. These loans have a lower interest rate than most credit cards, and can be used to pay for anything from a home renovation to a high interest credit account. However, these loans are not without risk and if you fall behind on payments, you could become susceptible to foreclosure. Make sure you do the appropriate research needed before taking out a home equity loan of any size!
Homeownership is one of the best financial choices a person can make. Owning a home increases a person’s net worth and accruing equity is a major player! We’ve seen home prices appreciate in the past year, meaning equity and net worth are up, and people can reap the benefits of owning their own home. If you’re ready to purchase your next house, consider using any equity that comes back to you during your sale to cover closing costs or the down payment on your new home! Curious about how much equity you have in your current home and how it can help you in the future? Contact your Shorewest, REALTOR® for the most up-to-date details.