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Home Equity

One of the basic mortgage terms that has to do with any mortgage refinancing or purchase is that of home equity.  What exactly is home equity and why is it such an important factor you might ask?  Let's go over what home equity is and why it is such a key component to the loan mortgage qualification process. 

The biggest determining factor on what the loan amount will be when buying a home is the appraised value.  The appraisal serves as a form of insurance for the lender proving that the property is worth a certain amount.  From this number, the lender will approve a loan that cannot exceed the appraised amount.  This ensures that home equity would back up the loan if the loan were defaulted upon.  In the event that the borrower cannot make their payments, the  lender would sell the house knowing that it is worth the amount that was loaned out on it.  

Home equity can also play a huge role when it comes to a mortgage refinance. In a refinance situation, many people want to pull equity out of their home to use in different ways. For example, if your house appraises for $200,000 dollars, but you only owe $160,000 dollars on your mortgage, you have $40,000 dollars worth of home equity. To be able to tap into this equity, a mortgage refinance is one of the most common methods. This would allow you to borrow over the $160,000 dollar amount and receive that amount as cash as closing. Many people use their home equity to help get their kids though school, a home remodel, vacation, and much more. No-matter what you want to use your home equity for, the equity is determined by an appraisal. Many people who want to pull money out of their home, or that want to use money to get out of a bad credit mortgage, often get a cost market analysis from a real estate agent. This allows them to see what the current going rate is on the home that they own. This will help them to get an idea of what the appraiser will give as far as value to the home. 

Home equity is a viable part of any home loan, whether it is mortgage refinancing, or a purchase.  Making sure that your home has equity is a great way to keep your options open when it comes to needing cash for any type of need.  Buying a home with existing equity is always a good deal, so make sure to keep on the lookout when buying a home for existing home equity. 


  10 Steps to Home Ownership:

Step 1: Are You Ready?

Step 2: Hire a Realtor

Step 3: Get Loan Pre-approval

Step 4: Search for Homes

Step 5: Choose a Home

Step 6: Obtain a mortgage

Step 7: Make an Offer

Step 8: Insure Your Home

Step 9: Close the Deal

Step 10: Avoid Foreclosure


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