If you have lived in your home for more than a few years, you may wonder how much equity you have. Equity is the portion of your home's value that you own outright; it is the difference between your home's value and the amount you still owe on your mortgage.
Understanding the Value of Home Equity
Home prices have been appreciating rapidly in recent years, so if you bought your house even just a few years ago, you might have significant equity.
You can calculate your equity by subtracting the amount you still owe on your mortgage from your home's current value.
If you owe $200,000 on your mortgage and your home is currently worth $300,000, then you have $100,000 in equity. If you're interested in tapping into that equity, a couple of options are available.
You could take out a home equity loan or a home equity line of credit; both would allow you to borrow against your equity, but they have different terms and conditions. Or, if you're interested in selling your home, you could use your equity as a down payment on a new one.
Whatever you do with it, understanding your equity is an integral part of being a homeowner.
Building Home Equity
When you take out a mortgage to buy a home, you borrow money from a lender and use the property as collateral. Over time, as you make your monthly loan payments, you gradually build equity in the property.
If the property appreciates, that can also increase your equity. And, of course, if you make extra payments on your mortgage, you will also build equity more quickly.
In addition to serving as collateral for your loan, equity can also be used as a source of funds if you need to make home improvements or repairs or want to tap into some of your home's value for other purposes.
Recent NAR Study
A recent National Association of Realtors (NAR) study offers insights into how much equity homeowners can gain over time.
The study analyzed data from the last ten years to calculate the median equity gain for homeowners. The results showed that at a national level, over the past ten years, "a homeowner who purchased a single-family existing home would have gained $229,400 in home equity if the home were sold at the median sales price of $360,700 in 2021 Q4."
These findings highlight the importance of long-term ownership in building equity and achieving financial security. They also underscore the value of real estate as a long-term investment.
If you have been paying your mortgage for a while, you likely have built up a significant amount of equity. And if you're thinking about buying a new home, that equity can be a valuable resource.
Partnering with a Knowledgeable Real Estate Agent
Partnering with a trusted real estate professional is the best way to get an expert opinion on the value of your home and how much equity you've gained over time. They can also guide how to use that equity to help with your next down payment. With their help, you can make informed decisions about the best use of the equity you have built up in your home.
When you sell your home, the amount of equity you have will significantly affect how much money you walk away with. We would be happy to help answer any questions about using your home equity.
