“Home equity” is a term that gets used a lot. But do you really understand what it means and what it can be used for?
Home Equity Defined
Home equity is your share in the value of your home. What that means is “home equity” is what you truly own and have interest in. Technically you’re a “homeowner” if you have bought your home and your name is on the title. But do you own it completely and out-right? Most people need to borrow money to buy a home. Because of this, lenders have an interest in the home while you are paying off your home loan.
As you pay your loan, your equity increases – because you now technically “own” more of it.
Using Home Equity
Home equity is used when your net worth is calculated and when you are getting a loan.
Equity is considered an asset. It’s a part of your total net worth. You will are able to use it to buy your next home, fund your retirement, or pay for a child’s education. If you choose to get a second mortgage, that means you borrow against your home’s equity. A second mortgage is also called a “home equity loan.” These types of loans can be dangerous because you are using your home as collateral for this loan. So if you are unable to repay it, a lender can foreclose on you, thus causing you to lose your home.
Working with a Lawyer
Buying a home can be a stressful thing, and there is a lot of terminology to understand. Should you find yourself facing foreclosure because you are not able to pay your home equity loan, it’s important that you contact a lawyer that can help you negotiate the situation and perhaps save you from losing your home.
Source: AboutMoney.com, What is Home Equity? 2015