What does HOME EQUITY really mean?

What you have said has nothing to do with equity.

Equity is what your house is worth minus what you owe on it. Say you buy the house and in five years it is worth $150,000, but you only owe $100,000. You have $50,000 worth of equity in the house.

Basically, as everyone mentioned, Home Equity is the value of your house minus the mortgage and other debts (liens) you have against the house. So a $500,000 house with a $200,000 mortgage would have $300,000 in equity. Now to give you more details, you can always get a home equity loan or line of credit from the bank. I would recommend a line of credit. Most banks offer at least 90% of the equity you have, and some go up to 100%. Make sure you never pay any fees for this line, especially upfront costs or points. Now the bank will pull your credit, check your expenses (debt to income ratio), appraise the house according to comparables in the area, and then tell you how much room they can give you. The benefit of this is that some banks, Wells Fargo being one, allow for you to have a line of credit and fix a portion of it so you can have a fixed rate on what you initially use. The remaining untouched amount will always be available with a variable rate. The home equity rates are not as low as first mortgage rates because the lender is taking second position on the property but it is still lower then any other loan or line you can get. Most home equity loans or lines are closely tied to the prime rate in the wall street journal. Now to answer your other question, you can use your home equity for anything you please. The most common use is to do home improvements but many people use it to pay off their credit cards, pay off auto loans, use as a down payment to purchase another property, use for investments, energencys, and so on. The main benefit is that in most cases, the interest is tax deductible compared to a credit card where the interest does no good for you. Also, I don't advise you to do this with a broker because they charge for it, where as most banks don't charge any fees and even pay for the appraisal and recording fees and everything. The only fee banks have is usually a pre-payment penalty if you close within 3 years, and that's usually standard.

They are all right. I'll add this. At day one you start with no equity without putting a down payment on the house. If you look to refinance within 12 months, your equity is based on the Purchase Price that you bought the house for on the Sales Contract. After one year, the equity is based on the appraised value of the house by a licensed Appraiser at that time. Some lenders will use the appraised value at 6 months but they have higher rates.

You start with zero equity unless you have paid a down payment. Possibly a negative equity of $2550. The difference in the sale value of the home and the amount owed is the equity.

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RE :What does HOME EQUITY really mean?

What does Home Equity really mean? How do you know that you have it??? I'm planning to buy a house for $314,950 with $2550 closing cost assistance. Other homes in the neighborhood range in price from $322,000 to $340,000. So what is my equity?

Follow 7 answers

The first answer is the best one. You are buying a house at what sounds like 101% financing. So at day one you will have negitive equity. Try to pay an extra couple of bucks a month to reduce your loans and grow equity.

Equity is equal to assests minus liabilities. The assest value of the home (Market value) minus the liability (mortgage) is the equity you have in your home.

Example if your home is worth $314,950 and you pay a down payment of $1,000 your equity is $1,000. Asset value 314,950 - liability value 313,950 = 1,000.

If one year from now your home goes up in value to 320,000 and you have paid the principal off by another $6,000 the equity would be; Asset value 320,000 - liability 307,950 your equity is $12,050.

Equity is the difference between what you owe and what the fair market value is.