What is Equity?
Your Quick Guide to Equity
If you are looking into certain type of loans, you may keep seeing the word “equity” pop up here and there, and you may be wondering, “What is equity?” Generally speaking, the word “equity” can be defined as a noun that describes fairness or impartiality, but in financial situations, equity has a lot more to do with value—especially that of a home.
What Equity Means in the Financial World
Equity is a term usually heard when referring to a home equity loan or line of credit, where a home is put up as collateral. If someone plans to take out a home equity line of credit (i.e., HELOC) or apply for a home equity loan, his or her house essentially becomes a bargaining chip. The person in question and his or her family may continue to live in their home, but should they not be able to repay the loan or debt in a timely manner, the lender could seize the property.
Further, the home’s value, or equity, becomes the deciding factor in figuring the total amount of the loan. Home equity is essentially the value assigned to a house after any outstanding loan or mortgage balances have been deducted.
In other words, after subtracting any debts owed on a piece of property—in this case a home—from your home’s market value, you would have your total amount of equity. For example, say your home’s appraisal value is $350,000. As a down payment, you were able to pay $50,000, so your mortgage amount worked out to be $300,000. In this example, your home equity would be $50,000, the same as your down payment, because you subtract the debt (i.e., your mortgage value) from the appraised value of the house. This is, of course, a simplified example; total values will always vary from situation from situation.
Need a Home Equity Loan?
Once you have an understanding of what equity is, you may decide to see about securing a home equity loan. If you are considering applying for a home equity loan, First State Bank warmly invites you to contact your nearest FSB branch to learn more about how to do so. Please feel free to call us at (940) 665-1711 or contact us here at your earliest convenience. Any of our professional lenders would be more than happy to work with you to see if you qualify. You may also learn more about our home equity loans here.