What is equity?
Equity has two different, but related meanings. On the one hand it is the term applied to the money the owner puts into the business – money that is not borrowed or is borrowed from relatives without any requirement to pay it back. Equity also means the same as “net worth,” which is the difference between the assets and liabilities of a business. It is the portion of the assets that the owner would get after all the liabilities were paid. Equity is one of two sources of capital for a business. The other is debt. Equity comes from the owner and debt comes from others, usually banks or other financing agencies.
Equity is the financial interest or cash value of your home, minus the current loan balance(s). If selling the home, this would also be minus any costs incurred in selling the home. If you’re buying a home and don’t have very much money for the down payment, you may want to find out if the seller would be interested in “sweat equity”. This would allow you to perform the labor on any needed repairs and maintenence to the home, (such as outside repairs, painting or electrical work) in exchange for credit towards closing costs.
Equity is a crucial aspect of home loans. Equity is simply the value of a homeowner’s unencumbered interest on real estate. Equity is computed by subtracting the total of the unpaid mortgage balance and any outstanding liens or other debts against the property from the property’s fair market value. A homeowner’s equity increases as he or she pays off his or her mortgage or as the property appreciates in value. When a mortgage and all other debts against the property are paid in full, the homeowner has 100% equity in his or her property. Equity exists in conjunction with your Loan-to-Value ratio (or LTV). Your LTV is a ratio expressing the value of your property to the amount of your loan. You determine your LTV by dividing your loan amount by your property’s value or selling/purchase price, whichever is lower. For example, you buy a $100,000 home with a $20,000 down payment of your own money, and cover the remaining $80,000 with a mortgage – 80,000 divided by 100,000 gives you a Loan-t
