At one point or another we have heard the term “Equity” and many may wonder what it means in real estate.

What is Equity?

Equity is the difference between the market value of your home and the amount you owe to the lender who holds the mortgage. Your equity is the money you would receive after paying off the mortgage if you were to sell the home.

Therefore, it is the difference between what your home is worth and what you owe on the home.

Let’s say for example that my home is valued at $100,000 and I owe $50,000 on the property. Then I would have an equity position of $50,000 on the home.

How Equity Can Work

The problem is that equity is not always usable unless you do something like sell the asset or refinance your home and pull some of the equity out of the home.

For example, let’s take the above equity position of $50,000 and we ask the bank to appraise your home to refinance. Let’s say that the bank allowed you to pull another $30,000. Now you can use that money to renovate your home or even purchase an investment property.

If you have any questions, please reach out to me and I can point you in the right direction.