What is Home Equity and How Does it Impact Home Buyers and Sellers in Irving?

Building equity in your house is one of the most crucial parts of homeownership, but it is also one of the most misunderstood. Let’s take a closer look at what home equity is and how it affects house buyers and sellers in Irving to get a better idea of what we’re talking about.

What Is Home Equity?

To comprehend what equity in a home is, we must first consider how a person normally obtains the financial means to purchase a home in Irving.

Impact Home Buyers and Sellers in Irving

The majority of home buyers do not have enough cash on hand to purchase a home entirely. The buyer then goes to a mortgage lender, who will ideally approve them for a home loan in the amount of the agreed-upon sale price minus the down payment.

A buyer who wants to buy a house in Irving, gets a loan from a mortgage lender and then uses the loaned money to buy the house.

Market Value

Next, we need to go over what the market value of a home means.

Many people believe that having an appraisal done determines the market value of a home, but that appraisal only determines the appraised value of the home.

A home’s assessment value is determined by combining various criteria such as the home’s features, age, condition, and the value of nearby, similar properties. An appraised value is a simple, quantitative method of calculating worth.

On the other hand, the market value is how much a buyer is willing to pay for the home.

The difference is that market value is totally determined by the purchasers’ judgment and their perception of the home’s worth. As a result, getting an appraisal does not present you with a figure that any potential buyer should pay for your home.

Finally, subtract the remainder of the owner’s loan from the market value of the residence to determine equity. The amount of home equity the owner now has in the property is the outcome of the difference.

For instance, suppose a seller accepts a $130,000 offer on their property and owes $90,000 on their mortgage. The owner has gained $40,000 in equity in their home as a result.

How Does It Impact Buyers and Sellers?

But why is equity important to us as a buyer or seller? Isn’t equity something that only the seller should be concerned about when calculating how much profit they’ll make on their sale?

The equity developed on a property clearly benefits the seller, as it allows them to use that equity to finance a down payment on a new home or to improve their current home in preparation for sale with a loan.

However, buyers can see benefits from a property owner with substantial equity.

Sellers with a significant amount of equity have a lot more wiggle room when it comes to negotiating a home’s sale price. A seller obviously wants to earn the most money for their home, but because of their increasing equity, they may be ready to take a modest loss in order to seal the deal and move on to the next chapter of their lives.

A buyer with strong equity in their current home can take advantage of this by putting down more earnest money or putting down a larger down payment. As you can see, when it comes to home equity, both buyers and sellers have a lot to gain.

Help Understanding Home Equity and Other Real Estate Terms in Irving

Contact us immediately, if you’re unsure what home equity, appraised value, market value, or other real estate phrases mean for your home buy or sale.

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