The stock market has been especially turbulent these days and it takes a strong stomach (and maybe a strong adult beverage!) to weather this economic roller coaster. While most financial planners agree that it is best to diversify your portfolio, almost all will agree that for many people home ownership is the foundation of their wealth.
Understanding How Home Equity Works and Why Buying a Home Can Be Your Best Investment
When delving into the world of real estate and investment property, there are many terms that will come up that require further explanation. Whether you’ve never heard the phrase ‘home equity’ before or you have a little familiarity, here are the ins and out of what it means and how this asset can help your financial outlook.
All About Home Equity
Essentially, home equity refers to your portion of the value of your home, and the amount of this figure is important because it is included among your assets when determining your net worth. If this sounds confusing, think of it this way: if you have completely paid off the cost of your home, the value of your home equity is this total amount. Of course, because most people seek a lender to borrow money from when they purchase a home, their home equity would consist of their down payment and whatever amount they’ve paid down on the mortgage since purchase.
An Example Of Home Equity
To provide further clarification, let’s use the example of a house that has been purchased for $300,000. In the case that a down payment of 20% has been provided at the time of purchase, the equity in the home would be $60,000. Since this amount is the percentage and cost of the house that’s been paid down, this is the amount of the house that is actually owned and this will be figured among an individual’s assets.
How Home Equity Works
As you pay the amount that you owe on your home each month, you are paying off your total debt and thereby increasing your equity. Since this amount of money is considered an asset that belongs to you, it can be used down the road to buy another home or invest in other important things like education or retirement. While paying off the amount owed on a home is a considerable investment, if the value of your home increases, this means that you’ll still owe the same on it but your home equity will have automatically increased.
“Home equity can increase over time if the property value increases or the loan balance is paid down.”
As an asset that is part of your financial net worth and can be used down the road to fund other investments, home equity is a very useful term to know when it comes to purchasing a home. You will want to discuss various homes and areas with your realtor when making a decision between homes. While of course no one has a crystal ball, your realtor should be able to provide you with a market analysis of towns and even subdivisions to assist you in determining historical trends in property increases. T.hey may also be able to provide you with market insight as to other factors impacting positively or negatively on future increases. For instance in our area we have had substantial manufacturing growth in the Summerville/North Charleston area which has already had an impact on the housing market.
If you’re on the market to buy or sell a home and are considering your options, please contact me at 843-471-7315 or at ShawnPhillipsSellsCharleston@gmail.com . I can assist you in the Low Country of South Carolina – Charleston, Berkeley, Dorchester and Colleton areas. Live somewhere else? I can also help you find a wonderful realtor in your area.