Why is building home equity important?

Question

And what exactly does it mean to build equity?

Answer 1

Equity is basically the value of the home minus the amounts of any loans on the home . So real quick if a house is worth $500,000 and the remaining balance on the mortgage is $300,000. The owner of that house has $200,000 equity.

You can build equity in a few ways.

1. The housing market in your area may be in a period of rising prices. So any increase in price due to market fluctuations is an increase in equity.

2. You can make improvements to the house that increase its market value. DIYers like to call that "sweat equity".

3. You make payments against the principal of your mortgage which lowers the outstanding balance of the loan.

Its important to build equity so you can sell the house and still profit from the sale and you can also borrow against the equity you have to finance other interests or home improvements. Note that home equity loans are often at way lower interest rates then credit cards or other types of loans. And the interest payments on a home equity loan may be tax deductible.

Anyway.. those are my thoughts on it.

Answer 2

It is possible to refinance the first mortgage and leave the home equity loan in place, but the second mortgage holder will have to approve it. It is a very common practice called a subordination agreement. They will probably charge a fee of $200 or so to approve and prepare the documents and they will also need to see the approved terms of your new loan application and appraisal to make sure their interest is protected. If you a refinancing to a HARP (Home Affordable Refinance Program) loan they probably won't require an appraisal. With the numbers you described, most lenders will approve and your refinance interest rate shouldn't be any higher than it would be without the equity loan. It will take a bit longer since there are two approvals to obtain. If you are getting divorced, I am sure your attorney will put a time limit on your husband paying off the equity loan.

Answer 3

Equity is basically the "cash" that is in your house. It's the difference between the value of the house and the debts that are drawn against it. So if you were to sell your house today and pay off the mortgages and fees, any cash that is left over would be the equity. Building equity basically means increasing the value of your home relative to the debt, either by paying down the debt or by doing improvements to the home that increase its market value.

While there are several reasons why you want equity in your home the most important is that if you are ever forced to sell (i.e. because you lose your job, have to move, etc), you want to be in a position where the sales price will pay off your mortgages. If you have 0 equity or negative equity, it means that when you go to sell your house, it will cost you extra money. For example, if the sales prices of your house is $100,000 but you have $120,000 worth of mortgages, it means that the banks won't let you sell it unless you pay them the extra $20,000 out of your pocket (on top of the broker fees and other closing costs).

A couple other reasons why it is important to build equity is because it increases your net worth and also allows you some flexibility to borrow against the house if you ever need to.

Answer 4

Well, you can always borrow the equity you have in your home for big purchases, like remodeling or debt consolidation. Also, if you decide to sell your home, the more equity you have, the more money you will be able to transfer from the sale to another home or whatever else you want. To build equity, you can make extra payments on your mortgage, or add a little bit extra to your mortgage payment and specify that it be applied to the principal balance of your loan. This will save you interest in the long run.

Answer 5

Building equity is an extemely important part of real estate because it relates to money and ownership. For example. If you bought a home and you put 20% of the home price down at closing you would have equity. Equity is the amount of money you have paid towards the purchase price of your mortgage.

Every month your mortgage contains both principal and interest. Paying off the principle is how you pay down a mortgage and increase the amount of money that would be returned to you when you sell your home.

For example: If you had a home valued at 100,000 and you have been paying for 3 years on it lets assume that you have 10,000 paid in principle. When you sell your home that sale price will be sent to your mortgage company and you would pocket the 'equity' or in this case 10,000 to apply to another home.

I hope this helps. Contact me if you need more information.

Answer 6

it's not
people use equity in their homes as cash ( like an ATM )
but you have to repay back that equity..
and that's where people get into trouble
they tend to do things like remodel or buy cars etc.. instead of just sitting on the equity and later when they downgrade to smaller housing ( like when your retired ) cash out the equity and bank it..
but people are stupid and that why we have record defaults and people taking equity loans

equity is the difference in value from the time of purchase in a house to the current market value if you sold it today
technically you can have a house for 1 day and have little to no equity built up yet...
banks determine the current equity with an appraised value of the home minus what the balance owed if the home went for foreclosure sale to cover a loan...
but some bans, eager to lend more bent the rule and end up overextending the homeowner..
keep in mind when you take out an equity loan,, it just a 2nd mortgage at a higher rate, you still OWE the money.. so it's not free money
many people use it to pay off debt ( typically credit card ) only to further sink into debt as they then run up the balance on the credit cards since the balances are zeroed out... then they take out a 3rd loan against the house....
you see where this is going right...
some took out equity loans in anticipation of uptick in their property values, which is no longer happening, so now they truly owe far more than the house is worth.

Answer 7

All the previous posters are correct. First equity is the difference between your mortgage amount and the value. The more equity you have the more capital you will be able to gain when you sell your home or that you can use for other investments.

Answer 8

You just need equity so when you sell the house, you actually make something from the sale??? I think!

Answer 9

All the answers are correct. If you don't buy, you will be building equity for your landlord not you. If you want to give it all to him with nothing to show for it go ahead. Thanks Pat

Answer 10

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You won't be able to refinance in your name alone when your soon-to-be ex husband still has a HELOC on the property. A more detailed answer depends upon whether or not you live in a community property or no-fault divorce state.