Thinking About House Equity If Selling A House?
If there's one time that you need to know about equity it's when you decide to sell a house. That's when the term " equity" becomes real, and when it makes or breaks your real estate transaction.
Equity is the difference between how much is owed on the house and its actual market value. The key to determining equity in a house is calculating the market value correctly, meaning the price the house will bring under present market conditions. For example, if there's a mortgage against a house for $65,000 and it sells for $100,000 that means there is $35,000 equity. What's left after paying off the mortgage and all selling expenses belongs to the seller. Home equity can be a seller's best friend, or it can become an enemy by accident.
The words "market value" have accidentally caused great grief to homeowners and lenders alike in the current real estate market. Banks loaned against market values that declined, leaving hundreds of thousands of homeowners unable to sell their homes because they owe more than their homes are worth at the present time. While it seemed like a prudent decision to get a home equity loan to pay off credit cards, build a garage, pay off student loans or take a much-needed vacation, many homeowners have a real problem now when they need to sell their homes. They have no equity and that means they cannot pay off a mortgage and pay the costs involved in selling a house.
Equity in a house is traditionally obtained in the following ways: a) the sum of the down payment plus the total of monthly payments equals equity in a house with a declining mortgage balance, and b) historically, the market value of a house increased every year. A combination of these two factors has given homeowners and lenders a false sense of confidence that market values would continue to increase.
But market values have not increased as expected, so the amount of home equity has declined or disappeared in many houses.
The general public has come to understand that home equity is not fixed amount like a mortgage balance. Equity is determined by subtracting the mortgage balance from the market value, and since the market value fluctuates, the value of home equity value also fluctuates and, even more importantly, can completely disappear. The day a house is sold is the day you know the real equity in that house.
Equity is the difference between how much is owed on the house and its actual market value. The key to determining equity in a house is calculating the market value correctly, meaning the price the house will bring under present market conditions. For example, if there's a mortgage against a house for $65,000 and it sells for $100,000 that means there is $35,000 equity. What's left after paying off the mortgage and all selling expenses belongs to the seller. Home equity can be a seller's best friend, or it can become an enemy by accident.
The words "market value" have accidentally caused great grief to homeowners and lenders alike in the current real estate market. Banks loaned against market values that declined, leaving hundreds of thousands of homeowners unable to sell their homes because they owe more than their homes are worth at the present time. While it seemed like a prudent decision to get a home equity loan to pay off credit cards, build a garage, pay off student loans or take a much-needed vacation, many homeowners have a real problem now when they need to sell their homes. They have no equity and that means they cannot pay off a mortgage and pay the costs involved in selling a house.
Equity in a house is traditionally obtained in the following ways: a) the sum of the down payment plus the total of monthly payments equals equity in a house with a declining mortgage balance, and b) historically, the market value of a house increased every year. A combination of these two factors has given homeowners and lenders a false sense of confidence that market values would continue to increase.
But market values have not increased as expected, so the amount of home equity has declined or disappeared in many houses.
The general public has come to understand that home equity is not fixed amount like a mortgage balance. Equity is determined by subtracting the mortgage balance from the market value, and since the market value fluctuates, the value of home equity value also fluctuates and, even more importantly, can completely disappear. The day a house is sold is the day you know the real equity in that house.
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