Dan Green

Dan Green

Since 2003, Dan Green has been a leading mortgage lender and respected industry authority. His unwavering commitment to first-time home buyers and home buyer education has established him as a trusted voice among his colleagues, his peers, and the media. Dan founded Homebuyer.com to expand the American Dream of Homeownership to all who want it. .

Indian Hill Home - Equity

How We Make Money

Homebuyer.com is your trusted guide to homeownership. Since 2003, our team has offered real-world expertise and advice to tens of millions of U.S. home buyers. Our content stands on its integrity: it's factual, unbiased, and free from outside influences. Read more about our governing editorial guidelines.

We also exist for profit and want our readers to understand how we make money.


Homebuyer.com is a mortgage-company-affiliated publisher. We earn compensation when you click specific links on the website, or apply for a mortgage with Homebuyer.com or partner listed in our comparison tables. Our partners compensate us differently, so we randomize our tables to protect our readers from steering. We may also earn compensation for advertisements on the site, which are indicated clearly. Note that limitations in our software, whether we originate mortgages in your area, and credit factors may affect the offers and comparison tables you see on various parts of this site. We do not include offers for every mortgage product available. Someday, we hope we will.

Certified Accurate

Certified Accurate

Your trust matters to us. This article was thoroughly checked for accuracy as of January 18, 2024. Homebuyer.com ensures every piece of information we share reflects the latest in mortgage standards. Learn more about our commitments to our reader in our editorial guidelines.

What is Equity?

Equity, or home equity, is a homeowner’s financial ownership in a property, calculated by subtracting the remaining mortgage balances from the home’s value.

A Longer Definition: Equity

Equity is the value of a homeowner’s interest in their property. It’s measured as the difference between the property’s current market value and the amount still owed on any mortgages or liens against the property.

Home equity is the inverse of loan-to-value. When loan-to-value is 90%, home equity is 10%.

A homeowner’s home equity increases in two ways only:

  1. Paying down the principal balance and money owed on the home
  2. Appreciation of the property’s value

Home equity is a powerful financial asset, and homeowners can use their home equity as collateral for home equity loans or home equity lines of credit (HELOCs) and as a source of cash for large expenses such as home renovations, education costs, and debt consolidation.

Equity is not guaranteed to increase in value over time. When home values drop, such as between 2007-2009, homeowner equity decreases.

Periods of decreasing home values are rare.

Home values have increased by 5.11 percent annually since the mid-1970s when the Federal Housing Finance Agency launched its House Price Index, which tracks home price changes.

Equity: A Real World Example

First-Time Home Buyer Stories: Equity

Consider afirst-time home buyer using a low-down payment mortgage to buy their first home – specifically a 97% LTV conventional mortgage.

At closing, the homeowner’s home equity is 3 percent.

Their lender explains to the buyer that private mortgage insurance will be necessary while their home equity is less than 20 percent, corresponding to a loan-to-value of 80 percent. The lender anticipates the buyer will reach twenty percent equity in less than three years through regular mortgage payments and expected home appreciation.

After a few years, the first-time home buyer’s equity exceeds 20 percent. They contact their mortgage lender, and the lender cancels PMI.

Common Questions About Equity

What happens to my equity if the value of my home decreases?

If your home’s value decreases, your home equity decreases as well. However, as long as you continue making mortgage payments, you are reducing the amount you owe which can also build home equity.

Can I use my home’s equity to pay for things?

Yes, you can access your home’s equity by opening a home equity loan or a HELOC with your lender. Both options allow homeowners to borrow against their equity, often at lower interest rates than other types of loans.

Does making larger mortgage payments increase my equity faster?

Yes, making larger or additional payments on your mortgage principal can increase your equity more quickly, as it reduces the amount you owe on your home.

Is it possible to have negative equity?

Negative equity, also known as being “underwater” on your mortgage, happens when you owe more than your home is worth. Because mortgages are due on sale, when a homeowner tries to sell their home, and it’s underwater, the homeowner must bring cash to closing to pay off the lien.


       Equity is the financial value a homeowner has in their property, calculated by subtracting the value of remaining mortgage balances from the value of the home.

Subscribe to our Newsletter

Be a better buyer. Subscribe now and never miss out on exclusive insights, new market trends, and first-time buyer programs.

Ready to get started?

Finding your dream starts here. Apply in minutes.

Get Pre-approved
© 2021-2024 All rights reserved. Growella Inc d/b/a Homebuyer. Homebuyer.com is powered by Novus Home Mortgage, a division of Ixonia Bank, NMLS 423065. www.nmlsconsumeraccess.org Homebuyer is located at 230 Findlay Street, Cincinnati, Ohio 45214. Novus Home Mortgage, a division of Ixonia Bank, is located at 20225 Water Tower Blvd. Suite 400, Brookfield, WI 53045. We have no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture, or any other government agency. US Government agencies have not reviewed this information and this site is not connected with any government agency. Equal Housing Lender. Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. The receipt of the application does not represent an approval for financing or interest rate guarantee. Restrictions may apply.
Get Today's Mortgage Rates »