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Mortgages & financing

Home Equity

Also called equity

In short

Home equity is the portion of a property you own outright: its current market value minus everything owed on it. It grows as you pay down the loan and as the home's value rises.

Formula
Market value − all loans/liens
Grows by
Paydown and appreciation
Can borrow via
HELOC, loan, cash-out refi
Negative equity
Owing more than it's worth

How equity is calculated

Equity = current market value - mortgage balances - other liens.

You start with your down payment, then build equity through amortization and appreciation. Renovations can add equity if they raise value more than they cost.

Using your equity

Homeowners can tap equity through a home equity loan, a home equity line of credit (HELOC) or a cash-out refinance. Each adds debt secured by the home, so missed payments can put the home at risk of foreclosure.

Equity and distressed sales

A homeowner in pre-foreclosure with substantial equity may be able to sell and keep the difference, which is better for them than losing the home at auction. An owner with negative equity may need a short sale or deed in lieu. Investors look for equity to judge which approach is realistic.

The formula

Home equity = Market value − All loan balances
All loan balances
First mortgage, second mortgages, HELOCs and other liens
Try it in the Refinance Calculator →
Example

Calculating equity

A home is worth $380,000. The owner owes $240,000 on the first mortgage and $30,000 on a HELOC. Equity = $380,000 - $240,000 - $30,000 = $110,000, or about 29% of the home's value.

Home Equity vs. Loan-to-Value Ratio (LTV)

Home Equity

Home equity is the portion of a property you own outright: its current market value minus everything owed on it. It grows as you pay down the loan and as the home's value rises.

Loan-to-Value Ratio (LTV)

Loan-to-value ratio (LTV) compares the size of a mortgage with the property's value. A lower LTV means more equity and less risk for the lender, which often brings better loan terms.

The differenceEquity is the dollar value (or percentage) you own; LTV is the loan as a percentage of value. Equity percentage equals 100% minus LTV.

Frequently Asked Questions

Related terms

RefinanceMortgages & financingTo refinance is to replace an existing mortgage with a new one, usually to get a lower rate, change the loan term, or take cash out of the home's equity.AmortizationMortgages & financingAmortization is the process of paying off a loan with regular, fixed payments over time. Early payments go mostly to interest; later payments go mostly to principal.Pre-ForeclosureForeclosure processPre-foreclosure is the period after a lender files a default notice or foreclosure lawsuit but before the property is sold at auction. The owner still holds title and can sell or catch up.Short SaleForeclosure processA short sale is the sale of a home for less than the amount owed on its mortgage, with the lender's approval. The lender agrees to accept the reduced proceeds to avoid a foreclosure.LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.MortgageMortgages & financingA mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.AppraisalBuying & closingAn appraisal is a licensed appraiser's independent estimate of a property's market value. Lenders require one to make sure the home is worth at least the amount being borrowed.Down PaymentMortgages & financingA down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.

Learn more in the knowledge base

What Is a Pre-Foreclosure? How the Stage Works for BuyersGuide · 7 min readPre-foreclosure is the window between a lender starting foreclosure and the home being sold at auction. The owner still holds title and still has options, so any purchase is a negotiation with the owner rather than a bid or a bank sale. This guide explains how the stage starts, how it ends and how it compares with auctions and bank-owned homes.How to Buy a Pre-Foreclosure Home: A Step-by-Step GuideGuide · 6 min readBuying a pre-foreclosure means negotiating with an owner who is behind on the mortgage, before the lender sells the home at auction. The deal can close as a normal equity sale or as a short sale that needs the lender's approval. This guide walks through each step, from research to a clean closing through escrow.How to Evaluate a Pre-Foreclosure DealGuide · 6 min readOnce an owner is interested in selling, you can replace rough screening estimates with real numbers. This guide walks through confirming what is owed, finding every lien, assessing condition and repairs, estimating value, and turning those figures into a maximum price you will not go above.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.