Understanding Home Equity and How It Can Grow

Home equity can be one of the most valuable benefits of owning a home. Understanding what it is, how it grows and how it fits into your financial picture can help you make smarter decisions, whether you’re thinking about buying or you already own.

With affordability, rates and home values all on buyers’ minds, equity is a good reminder to look at homeownership through a long-term lens, not just today’s headlines.

Jump to a question:

What is home equity, and how do I calculate it?

Home equity is your home’s current value minus what you owe on your mortgage.

To estimate your equity, subtract your remaining mortgage balance from your home’s current market value:

Your mortgage statement shows your current balance. Your home’s value is an estimate until it’s confirmed, such as through an appraisal.

How does home equity grow?

Equity can grow as you pay down your mortgage, if your home’s value rises and through some home improvements.

Equity isn’t built overnight, and rising home values aren’t guaranteed. But there are three main ways your equity can change over time.

Part of each mortgage payment generally goes toward your principal balance. As that balance goes down, your equity can go up, assuming your home’s value holds steady.

With most amortizing loans, the share of each payment going to principal changes over the life of the loan. Your mortgage statement shows how each payment is applied.

If home values in your area rise while your balance falls or stays the same, your equity may grow. But values can move in either direction. Many factors can affect what your home is worth:

That’s why homeownership is best viewed as a long-term decision, not a bet on where prices are headed next.

Some improvements may add value, but few renovations pay back dollar for dollar. Before starting a big project just to build equity, look at your home’s condition, comparable homes nearby and the features local buyers value most.

Often the most worthwhile projects are the ones that make your home work better for you, with resale value as a bonus.

What can I use home equity for?

Homeowners may be able to borrow against their equity for goals like home improvements, debt consolidation or major expenses.

Depending on your qualifications and available loan products, equity may help with:

Common ways to access equity include:

A new loan or refinance can come with interest, closing costs and changes to your monthly payment. Before you decide, make sure you understand both the immediate benefit and the long-term cost.

How much of my home equity can I borrow?

It depends on your loan program, your qualifications and your home’s value. Lenders generally require you to keep some equity in your home.

Your credit, income, existing debts and loan-to-value ratio, which compares your loan balance with your home’s value, all play a role. A USA Mortgage loan officer can show you what may be available and how it would affect your payment.

Is building home equity guaranteed?

No. Equity can grow over time, but not at the same pace for every homeowner.

Your mortgage balance, your home’s value, your local market and the decisions you make along the way all affect how much equity you build. That’s why the bigger picture matters.

USA Mortgage is not licensed to provide financial advice. Please consult an appropriately licensed financial professional regarding your individual financial situation.