If you’re considering selling your home, you’re also probably wondering how much cash you’ll be left with after the sale. Although your real estate agent can tell you how much your house might be worth, your takeaway number depends on the amount of equity you currently have in your house.
The amount of equity you should have in your house before you sell it depends on your personal circumstances; however, there are some things that every homeowner should consider. Keep reading to find out some must-know equity facts for sellers.
Equity Is Not Profit
To make a profit on your home, the sale price must be higher than what you paid to acquire the home. Of course, in some situations, especially if you’ve lived in the home for several years, it’s possible to sell your home for less than you paid and still come out with some money, even after paying off the mortgage. This is known as having positive equity, but taking a loss on the home.
If Your Home Value Increases, So Does Your Equity
Put simply, home equity equates to the amount of house you own, free and clear. As you pay your mortgage down, you build equity. For example, if you have a $250,000 house and an outstanding mortgage balance of $150,000, you have $100,000 in equity.
This also increases with your home’s value. Fortunately, home values have been rising since the 2008 housing crash. This means that many homeowners are left with more cash in their pockets after selling their home.
You Don’t Need Equity to Sell Your Home.
Not having equity in your home does not mean you can’t sell; however, you will have to find the funds to pay off your outstanding mortgage and closing costs. In addition, without equity, you have to find funds to put a downpayment on your new home. This is why, although technically possible, most homeowners choose to sell their home once they reach a certain amount of equity.
Of course, sometimes you may need to sell your home at short notice before you can build your equity. In this case, you can save money by negotiating lower real estate fees and closing costs.
The “Ideal” Amount of Equity Varies
There is no magic equity number, and the amount of equity you should have before selling your house depends heavily on your goals. At a minimum, your sales proceeds should cover the outstanding amount of your mortgage, your closing costs, and a downpayment for your new home. If you have enough equity in your property to take care of these considerations, you should be in good stead. Having more equity in your home can help you put a larger down payment on your new home, or can be used towards renovations.
Home Equity Is Not a Get-Rich-Quick Option
It takes time to build up the equity in your home. According to Attom Data Solutions, only 10% of households owned for less than 12 months are “equity rich.” Your house is considered equity rich if the property’s debt is 50% or less of its current market value. This means that homeowners who stay in their homes for longer are more likely to accrue equity. As you pay down your mortgage and reduce what you owe, your property typically gains value, increasing your equity.
If you’re not sure how much equity you have in your home, you can use a home equity calculator to help give an idea. Alternatively, you can call your lender and find out how much of your loan is still outstanding.