How does the equity of a home play a role in the sale of that home?
March 26, 2009 by Debt Equity Financing
Filed under More Equity Answers
Can you answer E S’s question about Equity?:
I hear too often that if my home has equity then thats great when it comes time to sell. The way I see it is that If I own a home free and clear then selling the home will allow me to keep all the money. If I still owe 20000 on my home and it has equity of 400k If I sell it for 400k then I simply pay off the balance of my mortgage (20k). Am I missing something here?
Reverse Equity Mortgage
I hear too often that if my home has equity then thats great when it comes time to sell. The way I see it is that If I own a home free and clear then selling the home will allow me to keep all the money. If I still owe 20000 on my home and it has equity of 400k If I sell it for 400k then I simply pay off the balance of my mortgage (20k). Am I missing something here?
Reverse Equity Mortgage
That’s basically how it works. You sell a home for a certain amount of money and then you pay off the mortgage, so whatever’s left is yours. Now, that doesn’t necessarily mean that paying off a house is the best investment you can make. Nothing wrong with it, but if you’re looking for maximum bang for your buck you may be better off making the monthly payments on your mortgage and investing your extra money elsewhere. No way to be sure which is the better investment without checking interest rates and comparing.
NO. You got it. It doesn’t play any part except for what goes in your pocket at closing. 400K selling price -20K payoff =380K to you.
Also if you lived in it two of the last five years then you get a Capital Gains Tax deferment of 250K. Neat stuff,huh?
Equity: The residual value of a business or property beyond any mortgage thereon and liability therein.
Having equity in your home simply means having a home with more value than your mortgage. The higher the equity the more money you get upon closing.
Having a house free and clear is the best case scenario, but it really just means you have the highest equity possible for that property.
Example:
Home value(400,000) - Mortgage(100,000) = Equity (300,000)