Today we discuss what equity is, and what it means for you in the real estate market.
Equity has several definitions, but in real estate it is calculated by taking market value of a property and subtracting what is still owed on a mortgage. This is why equity is never a set amount on a given day because payments are constantly being made on a mortgage so the equity of a home is always fluctuating. Equity is also influenced positively by making improvements on your home, or rises in the market of real estate values. From the other aspect, equity can be dragged down by damage to your property, a fall in the market and an increase in the loan principal amount.
Equity is extremely important in real estate because it determines value. The more equity you have, the more property you own and therefore more valuable it is. When equity is low, it means that more is owed on the property than is owned by the person living there. This makes it extremely difficult to get loans or sell your home, because at this point it is not quite yours to sell. This is also precisely why down payments are required when buying a home. Down payments allow a safety net for lenders in case the deal falls through or results in foreclosure. Equity is also used as a buffer in case a homeowner defaults a mortgage, protecting the banks involved. The goal for many people is to reach that 100% equity point, meaning they have paid off their mortgage and fully own their property. This makes the owners as well as the property much more valuable in the real estate market.
Speak to your BridgeView agent today about equity and different financing options for you and your budget. Local banks can also assist you in figuring out the fastest way to earn equity in the market. This may call for you to change your budget slightly or purchase a less expensive home, but it may pay off in the end for equity purposes.