The equity you have in your home is the difference between the property’s worth and the loan balance you owe to your lender. If you purchase a $200,000 home with a $150,000 mortgage, you have $50,000 of equity in your home. If your property value remains stable, your equity will grow. Home equity is a confusing concept for some homebuyers. If you want to learn more about the complexities of home equity, read more.
Your lender secures the mortgage loan by placing a lien on the property until you pay off the balance.The buyer will repay the lender over a period of time for a certain cost. The lender has a legal claim against the borrower’s home if the borrower defaults on the terms of the mortgage. Although the buyer has possession of the home, the lender owns the property until the buyer completely pays off the debt.
The value of your home
Homeowners often believe their property is worth the price they paid for it, but that is not always true. The value of your home is only worth the fair market value, and this number fluctuates. If you make improvements and keep up with maintenance, you can help maintain the value of your property.
Let’s say the demand for homes in your neighborhood declines. The price of homes in the area would decline too. If you paid $200,000 for your home and took out a $150,000 mortgage, selling it at $150,000 would mean you had no equity.
Loans and lines of credit
Most lenders offer loans and lines of credit on the equity you have in your home. These loans are considered a second mortgage. When you receive a home equity loan, your lender gives you a lump sum equal to or less than your equity. You will receive a payment plan to repay the loan.
If you have significant equity and a good credit rating, you may be approved for a home equity line of credit. A HELOC loan works similar to a credit card. The lender gives you a line of credit you can use when you need it. With a line of credit, your equity acts as collateral.
Home Equity Loans at FirstBank Southwest
A Home Equity Loan* can be used for expenses such as wedding expenses, vacation, home improvements, debt consolidation or to start up your dream business. Call us at 806.355.9661 for more information.
*With approved credit. Some restrictions apply.