Home Loan 101: All About Home Equity

small house on top of us dollars

Unless you are really loaded or won the lottery recently, the chances are that you can’t afford to buy a home on an all-cash basis. For most potential homeowners, just saving up money to pay down the standard 20% down payment for a home loan could be a challenge.

But whatever you could put down would really help since that would automatically go toward your home equity that you could convert to cash in time and use for paying your other expenses.

What exactly is home equity?

Your home equity basically represents the value of your house, based on the difference between how much you still owe on your home loan and the value of your house. Essentially, when you are trying to figure out the exact (more or less) value of your house, your equity is the specific component, money wise, that you own since you have already paid for it.

In time, your home equity will increase in the event that your home gains or appreciates in value and you repay more and more of your home loan. If for some reason the value of your house goes down over time because of recession or some other economic turndown, your equity might end up lower than you expected, but for the most part, chances are it will continue going up if you continue paying your mortgage bills every month, on time, adds an experienced home loan officer in Utah.

Why should you care about it?

man writing and toy house For one, if you need to move or realize that you are not 100% satisfied with your current abode and are looking to sell it, you could convert your home equity into actual cash and then use it for your down payment on a new house.

In addition, once you have acquired enough equity, you have a chance of qualifying for a HEL, or home equity loan, or a HELOC, home equity line of credit. Perhaps you want to make your garage bigger, need money for your kid’s college tuition, or build a more modern kitchen.

Or maybe you are nearing your retirement age and are looking for more ways to finance your retirement fund. Securing a home equity loan is an easy and quick way to help meet goals such as these.

Your home equity is a percentage of the value of your home that you could actually claim as your own. To help make certain that you build up as much equity as possible, just keep on paying your mortgage payments on time.

It’s also vital to note that revolving credit typically has more pull on your credit score than a standard installment loan. This means that if you’re looking for a way to fund your retirement or your kid’s college tuition fee, utilizing your home equity in order to obtain a home equity loan might be a more suitable solution than accruing credit card debt. Likewise, when compared to the interest rates of credit cards, home equity loans usually offer lower interest rates.