View All Learning Articles
Is April 2024 a Good Time to Buy a Home?
The 100% HELPER Act Mortgage
The $25,000 Downpayment Toward Equity Cash Grant
The Biden $15,000 First-Time Homebuyer Tax Credit
$10,000 First-Time Home Buyer Mortgage Relief Credit
14 Grants & Programs for First-Time Home Buyers
View All Research Articles
170+ Mortgage Statistics
Generational Home Buyer Statistics
Annual HMDA Home Buyer Study
Most Popular Places for Vacation Homes In Every State
Gen Z Home Buyer Distribution By Location
Younger Millennial Home Buyer Distribution By Location
Older Millennial Home Buyer Distribution By Location
ZIP Code Invasions: Gen Z
ZIP Code Invasions: Younger Millennials
ZIP Code Invasions: Older Millennials
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. Read more about Dan Green.
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 our editorial guidelines.
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 a 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.
Trusted Content
This article was 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 in our editorial guidelines.
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.
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:
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.
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.
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.
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.
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.
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.
Wave goodbye to waiting times and say hello to our Immediate Mortgage Approval. It's more than just a mortgage - it's your ticket to home-buying freedom, available anytime you are. With ultra-low rates at your fingertips, the power to secure your future is just a click away. Why wait for office hours? Your home doesn't.
What is a Starter Home?
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.
Be a better buyer. Subscribe now and never miss out on exclusive insights, new market trends, and first-time buyer programs.
Finding your dream starts here. Apply in minutes.
About
Learn
Research