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A Short Guide to Home Equity

A Short Guide to Home Equity

Savvy homeowners would argue that one of the main reasons they want to buy their first home is to begin their journey of building equity. Home equity can be useful in many scenarios. It will increase your net worth, it can be used to help fund a second mortgage, and it can even be used to help renovate your home. Here is a short guide to help you get to grips with home equity.

What is Home Equity?

Equity is a term that describes the difference between the current worth of your home and what you owe your lender. Therefore, home equity is the portion of your home that is actually under your ownership. For example, if you owe $100,000 to your lender, but your home is worth $150,000, you have $50,000 of equity in your home.

Then you won’t have 100 percent equity in your home until you pay off the $100,000 to your lender. Building home equity will boost your net worth overall. It is useful if you need to make major renovations on your home, and you can use it to fund a new property.

Calculating Home Equity

To get an accurate calculation of the equity in your home, you need to obtain the estimated current market value of your home from a valid source, such as a local real estate agent. Using this figure, subtract the amount of money you owe your lender, plus any other related debts, and you will have your home equity.

The more payments you make to your lender, the higher your equity will rise. It can also rise if the value of your property increases. Unfortunately, this also means that it can fall if your property’s value drops dramatically. In this case, homeowners who still have payments to make can be left with a hefty deficit to pay off.

Home Equity with Bad Credit

Those who want to access their home equity, whether it’s for a renovation, a loan, or for debt consolidation, usually require a good credit score. When it comes to home equity loans, bad credit doesn’t have to hold you back. Those with bad credit can still access their equity using the right tools.

Companies like EasyKnock, offer sale-leaseback programs to homeowners who want to get cash from their home equity. With these solutions, homeowners have the option to sell their property and liquidate their home equity. They also have the chance to buy back their property, and they can remain in their home as a tenant.

How to Increase My Home Equity

In addition to making payments to your lender and reducing the amount you owe, there are also other ways to increase your home equity. For example, you reduce the risk of investing in a property that might decrease in value over time by doing some research into historical property prices.

You can also put down a large down payment for your home, and you can make additional principal payments to increase your equity quicker. Increasing the value of your property with home improvements can also increase your home equity.

About Author

Dana Cull

Dana is a digital content creator with a self-confessed obsession with writing. She is also an avid reader and loves to spend her leisure hours watching documentary films from different directors across the world.