Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Home Equity in Texas
In this post, we will understand what is home equity is and how to grow and use the equity in Texas.
What is Home Equity?
Home equity is one of the most common phrases used in real estate. A simple equation to understand equity is, {Home Value} – {Mortgage} = {Home Equity}.
There could be other liabilities on your home like tax liens, general liens, etc. but for simplifying the understanding process, we will provide you an example of your mortgage as a liability.
An example to start with will be if you own your home outright, which means if your home is worth $100,000 and there is no mortgage or any other lien on the house, you have $100,000 in Home Equity.
Not everyone has 100% equity, so let’s take another example where your home is worth $100,000, and you have a mortgage of $30,000 and no liens. This means you have $70,000 in Home Equity.
Example: $100,000 (Home Value) – $30,000 (Mortgage) = $70,000 (Home Equity).
In the above example, you would have $70,000 in equity, which means if you sell your home, you will get $70,000 cashback at closing, minus realtor fees and closing costs.
How to Grow Home Equity in Texas
Since home equity is a valuable asset, you want to increase your home equity over time. The way how to grow home equity in Texas is to simply put a large down payment when you purchase a house.
For example, if you are buying a $100,000 home and you put $20,000 as a down payment, you will have $20,000 in home equity.
Another way to grow home equity in Texas is by paying extra towards the principal on your mortgage.
You could spend a lump sum amount when you receive additional funds or pay a small amount every month towards your principal amount.
This will help grow your home equity in Texas by a substantial amount.
One more way to grow home equity is through property appreciation.
Every time a person goes through property appraisals, and if the property value appreciates, it increases your home equity.
For example, If the property value gets appraised to $120,000 with a mortgage balance of $50,000, the total home equity would be $70,000.
How to Use Home Equity In Texas
When you have equity in your home, the question is how to tap into the home equity that you have managed to build over sometime. Below are the ways you can use home equity in Texas.
- Obtain a Loan (Home Equity Loan / Cash out Loan) – You can approach any financial institute like a bank, lender, or mortgage broker who can help you get a loan against the home equity that you have built. The interest rate on the home equity is lower compared to any other loan such as a car loan, business loan, personal loan, etc.
- Sell the Asset – Once you have enough equity, you can always sell the house and get the equity in cash at closing.
Conclusion
There are many financial institutes in the market to provide you with a home equity loan in Texas or help you with a cash-out refinance.
However, it is advised by many financial planners to use your home equity wisely.
