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When you buy a house, one of the big benefits of doing so is that you begin to build equity. Equity is the difference between the market value of your property and the amount of money that you owe to your lender. It’s basically the money you have invested in the house that you’d walk away with if you sold the property.
The more home equity you have, the better. You can tap into this equity by getting a second mortgage or home equity loan, or you can walk away with the money when you sell the home and use it to buy a new property or other things.
Whether you’re currently a homeowner or hope to become one in the future, it can be interesting to see how much equity you have compared to your fellow Americans. Here’s what you need to know to figure that out.
Americans have a lot of equity in their homes
According to the Federal Reserve, for families who owned a home in 2022, the median equity in the house was $201,000 in 2022. This is a huge increase from the $139,100 in median equity that homeowner families had in 2019.
Homeowners acquired a lot more equity in their homes because property values went up so much during the pandemic. But even as property values rose, there wasn’t a big increase in the amount of people taking on debt. Homeowners across pretty much all income levels saw their home values increase, so people across the board found themselves with a lot more equity.
It’s great news that so many people now have homes worth so much more than they owe on them. The rise in housing values not only helped people increase their net worth, but it has also given people more options such as being able to sell, take their profits, and downsize to smaller homes they may be able to afford with cash or with much smaller mortgages.
Unfortunately, now may not be a great time for homeowners to try to tap into the equity in their houses because mortgage rates are very high. That means refinancing or taking out home equity loans may not be worth it. And selling may not be a great idea right now for those who’d have to turn around and buy a new house with a home loan — which would likely have a much higher rate than they had if they got a mortgage over the last few years.
But the great thing is, unless home values plummet, homeowners will keep that equity and it will be there to borrow against or otherwise benefit them in the future when and if mortgage rates fall.
How can you build equity in your house
Having equity in your home is a good thing, so it’s important to understand how you build it. Basically, there are a few ways:
- You build equity when your home goes up in value. You don’t have much control over this, but rising property values are a huge reason so many Americans have so much more equity now.
- You build equity when you make payments to your mortgage lender or make a large down payment. The smaller your mortgage balance relative to your home’s value, the more equity you have.
- You build equity when you improve your home’s value. If you install a new kitchen, for example, your home value would rise because of it.
You can work on paying down your mortgage and keeping your home in good condition and you’ll naturally build equity over time — which will go a long way toward helping you grow your wealth over the long term.
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