What Does Equity Mean to You?

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Today I want to talk a bit about home equity. For many new and would be buyers this term may be unfamiliar. Home equity can equal savings-savings you don't even think about. To keep it simple, equity in your home is the difference between what the house is worth and what you owe on it.

Let's say you buy a house for $100,000. You put 5% down ($5000). This would mean your equity is $5000 the day you close on the house...unless...your house appraises for $115,000 during the sale process. Then your equity is $$20,000; the difference between what the house is worth and what you owe.
Well that's nice, you say. No one wants to pay more than a house is worth, but what does that mean to me? Let's attack that question in a couple different ways. If you are a smart buyer you will purchase a home in a neighborhood in which there is demand. Perhaps it is because of the local schools, or maybe the physical characteristics of the lots in the neighborhood. Perhaps the location is close to shopping and amenities. It is financially advantageous to purchase one of the lower priced homes in an area that is growing in demand and value.

Since Americans only remain in a home on average 5-7 years. chances are that you will wish to sell that property sooner rather than later. Job transfers, growing families, more income, all contribute to the reasons people put their homes on the market. If you have bought into a neighborhood that has increased demand, your home should be worth more than what you paid for it, therefore, your value is up. You have been making payments all this time, so what you owe is down. Meaning you will have more money to put down on your next home or stash away in savings if you aren't buying again right away.

Perhaps you have no intention of moving, but your family has grown over the past seven or eight years and you need more space. Your home that you paid $150,000 for has increased in value to $175,000. Chances are there is some cash you could take out of the house between what you owe and what it is worth refinancing or using a home equity loan to add on or improve the home.

At Hallmark we have a loan that does just that, our Toolbox loan. Using the toolbox you can access the equity in your home up to 95% of the value for improvements. This product can even be used on a purchase to update a home you wish to buy assuming the home is worth enough to support the loan. Equity can be used for other things as well: to finance a portion of retirement if you sell once you retire, to access to send a child to college, or in some cases it might make sense to pay off debt.

So the next time someone is talking about equity in a home-what they a