Home Equity

Home equity summary:

• Home equity is calculated by subtracting what you owe on your mortgage or any home equity loans from your home’s fair market value.

• Home equity tells you how much you might be able to borrow against the property. 

• When you apply for a home equity loan, the lender will calculate your equity. 

Home equity definition and meaning

Home equity is the fair market value of your home minus the amount you still owe. It represents your home's unencumbered value—or the amount not owed to someone else. You could also think of it as the amount of your home that you own outright. 

To calculate your home equity, you need to know your home’s current fair market value. You can usually get a ballpark figure from online real estate websites. Then subtract the amount that you still owe on your mortgage and any home equity loans you have. The result is your equity. If you’re applying for a loan, the lender will use its tools to calculate your equity, and the result might be different from your own result.

Key concept:

Home equity is the amount your home is worth once you subtract any money you still owe on it. 

More about home equity

Knowing the amount of equity you have in your home tells you a couple of things. First, you’ll know how much you could walk away with if you sell your home after paying fees and closing costs. It also gives you an idea of how much you could borrow against the property if the need arises.

Home equity: A comprehensive breakdown

To calculate your home equity, you need to know your home's current fair market value. You can usually get a ballpark figure from online real estate websites. Then subtract the amount that you still owe on your mortgage and any home equity loans you have. The result is your equity. 

If you're applying for a loan, the lender will use professional tools to calculate your equity, and the result might be different from your own.

Here’s a simple example of how home equity is determined. Your home’s current appraised value is $400,000. You owe $200,000 on your mortgage, and you have a remaining balance of $20,000 on a home equity loan. Subtract the two balances (the mortgage and the home equity loan) from your appraised value: 

400,000 - 220,000 = 180,000

In this scenario, $180,000 is the equity in your home, funds not owed to anyone else.