What is the Equity in My Home?

For the most part when you buy a home you establish some type of equity when you have money as a down payment. The larger your down payment the more equity you have in your home. As time goes on and the value of your home increases and your mortgage balance decreases, due to your monthly payments, the more equity you receive.

If the appraised value of your home is $500,000 and the mortgage balance is $210,000 then your equity is $290,000. If you decide to sell your home for the appraised value then you receive a check for the amount of the equity. Of course it does not work out exactly that way because of the fees and costs involved. After deducting real estate commission fees and other fees you will still receive a substantial amount of money.

Unfortunately because of the housing crisis we saw a lot of people lose the equity in their homes. When the value of your home goes down the amount of equity In your home goes down as well. If the value of the home in the above example were to decrease to $375,000 the equity would now be $165,000, which represents a significant drop.

This example is not as devastating as some of the actual situations homeowners have actually been faced with. A large number of people across the country actually owe more money on their homes than it's worth. They don't actually have any equity. No one knows for sure when and even if the housing market will recover from the chaotic situations we have been subjected to in recent times.

Some people were using the equity in their home as a source of income. If they had an equity line credit they could actually tap into source by taking out money against the line of credit. Without any equity that line of credit is useless. Most creditors have taken it upon themselves to close out the home equity lines of credit or as the situation dictates, reduced the home equity lines of credit substantially.

One way to recoup your equity is to do home improvements. Don't expect any type of home improvements to restore the value of your home to where it was before the value decreased. Certain home improvements will not have any major impact on your homes value at all. If you have a bathroom or kitchen remodeled these are more likely to add value. A room addition is also likely to increase the value of your home. You can reach a point where the improvements will have no effect due to the neighborhood and the value of the other homes. It is quite possible to over improve your home.