The American Dream is homeownership, providing families with a place that is their own and an avenue for building wealth over time. The “wealth” is built, in large part, through the creation of equity in homes.
What is equity?
In the simplest terms: your home’s equity is the difference between how much your home is worth and how much you owe on your mortgage.
Here is an example:
Let’s say you bought a $250,000 house with a down payment of 7% ($17,500 approximately), resulting in a loan amount of $232,500. By securing a 30-year fixed-rate mortgage at 4.5%, your monthly mortgage payment is $1,178 without taxes, insurance, or PMI.
To calculate your home equity, subtract the amount of the outstanding mortgage loan from the price paid for the property.
At the time you buy, your home equity would be $17,500 or the amount of your down payment. For perspective, once you have paid off your mortgage you’ll have 100% equity in the home.
Appreciation
There are two ways to build equity: by paying down your mortgage over time and through your home’s appreciation.
Each month, you make a mortgage payment that will decrease the amount you owe on your loan.
Over time it is unlikely the value of your property will remain the same as when you originally purchased it. While property values can go up or down, the national average for home appreciation is 3% per year. If you live in a neighborhood where property values are going up overall and you’ve maintained your property well, the amount of your equity will increase as well. So an example: if your home appreciated by 3% annually your home’s value would value)-(principal owed)=(home equity) you would have $149,771 in equity.
Owning a home is a perennial part of the American dream. But, for over a year, the housing market has been very up. Consequently, many potential homeowners here in Texas have found it difficult to get their foot in the door—literally.
But just because purchasing a home might be tricky proposition right now doesn’t necessarily mean that this is a bad time to shop for a home. As always, finding property you can feel comfortable calling home depends on more than economic forces that are beyond any individuals control.
If you are a home owner in the Dallas, Fort Worth area the appreciation in your current home has went up 14.9% in 2021, we’ve seen your household wealth grow substantially, and the real estate market is saying you’ll see another nice boost in 2022. If you’re thinking of buying, consider buying now as prices are forecast to continue increasing.
“But as high as prices are, they have yet to peak,” according to a new report from Goldman Sachs. The investment bank projects that home prices—already at records highs—will grow another 16% by the end of 2022.
At Texas People FCU, we can help you borrow some of the equity you’ve established in your home. With that collateral, take advantage of our competitive low rates and budget-friendly repayment terms to remodel your home, help pay for school expenses, consolidate your debt or even take a family vacation. You choose!
