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What is a Home Equity Loan |
What is a Home Equity Loan - Home equity loans are a great way to take advantage of all of the equity that has built up in a home.
Equity is the money that exists on paper because the value of the home is greater than the principal owned on the initial mortgage. Equity is gained in a several different ways.
Initially, equity is gained because the down payment on a home creates a difference between what the house is worth and what is paid for it. If a home originally cost $200,000.00, and the buyer puts down a ten percent down payment, it creates the first equity. In this case, the difference between the worth of the house and the money owed would be $20,000.00.
If the home buyer was able to get an exceptional deal, then the initial equity could be higher. If the home was worth $220,000.00 but the seller really needed to sell and was willing to sell if for a small profit, the equity changes. In this case, the home buyer would have $40,000.00 in equity. |
