Equity is the difference between a home’s current value and any existing loan balances. It can go up or down, depending on the local real estate market. For example, if your mortgage balance is $189,000 and you have a home equity line for $46,000, then your total loan balances come to $235,000. Should you decide to sell or refinance, and you hire an appraiser who appraises your home at $339,500, your equity would be $339,500 minus $235,000, or $104,500.
However, equity can change because it is dependent on the value of your home, which can increase or decrease with market fluctuations. Value is usually established by an appraisal that is good for up to six months, depending on the market.
Equity can also come into play if you were to talk to a mortgage lender about a second mortgage, or home equity loan, and the lender may tell you that he or she is willing to loan you up to 90 percent of your equity.
The bank hires an appraiser who determines that your home is worth $350,000. Subtracting that amount from your first mortgage of $180,000 leaves you $170,000 in equity, of which the bank is willing to loan you 90 percent, or $153,000.
Although the national economy strongly influences local real estate values, the equity you accrue is still dependent on local supply and demand. When you sell a home and move to another area, it’s common to either suffer sticker shock or rejoice in how big a home you can qualify for.
For instance, if you sold your 1,200- square-foot home in San Francisco’s Sunset District and moved to Ogden, Utah, you could get basically the same home for about 70 percent less.
Related posts:
You can follow any responses to this entry through the RSS 2.0 Both comments and pings are currently closed.