What Is Home Equity?
By Brennen Kent, Verrado Realty Sales Associate
Equity increases as your home’s value grows over time. This is a leading reason people buy homes rather than rent – to use that home as an investment. A home is the biggest investment most people will make in their lives. It is important to keep up on your home, often times the smallest of problems can lead to the big and unexpected issues if they are not addressed and remedied early on. So, what is equity? Equity is approximately the amount a homeowner could sell their house for, less what is owed on it. The true value of equity in your home is not just the remainder of what is owed on the current mortgage. It is important to consider all the debts you have put into your home such as improvements, which in turn can increase the value of your property in the long term.
When homeowners accrue enough equity in their homes, they can tap into it for all sorts of purposes. Many homeowners use this equity to pay for improvements to their home, help plan for their retirement, pay for unexpected life events, or use the capital for a down payment on another house if they choose to sell their current house. Home owners who have established good equity in their homes and are looking to make improvements can take out a HELOC, home equity line of credit, and tap into your home’s equity to update your home and increase its value. The longer you own your home and as the market continues to grow the more equity, you will have built and can pull those funds to do as you please.
In markets where we have seen steady growth over the last four years, you can see how important appreciation is in helping a homeowner accumulate equity. Home owners who purchased their homes during the downturn of the market now have seen substantial growth in terms of equity in their properties and are closer to having paid off their homes. In Verrado home owners who purchased over the last 4-6 years are now in a position to become move-up buyers, selling to move into a larger, nicer home than the one they currently own. We continue to see this as the market place continues to thrive in our community.