Tips & Advice
“Home Equity” depends on what you’re doing with your house
If you have a mortgage, it will need to be paid off when you sell. Some of your equity will cover the cost of selling your home [Insert link to “Cost of Selling” Blog] The title company will pay off any debts including your closing costs and your existing mortgage. The money left after the sale minus these costs are your net proceeds, and this is the portion of your equity actually paid to you in the end.
When banks and real estate professionals talk about your home equity, they have two different amounts in mind: The equity left in your house on paper while you live in the home, and the net equity proceeds paid to you if you were to sell your house.
Why are these different? It costs money to sell a house, and a portion of your equity on paper has to cover the cost of selling your home [Insert link to “Cost of Selling” Blog].
In the example from our blog post linked above, we imagined that your house was worth $200,000, and your total cost to sell it was $21,500. This gives you $178,500 in total sales proceeds. What if you had $160,000 left on your mortgage for this house? Then your net equity proceeds would be $18,500 ($178,500 minus $160,000 to pay off your mortgage).
While living in your home, your Equity on Paper is simply your home’s property value minus your outstanding debts on the property. In our example:
When you sell your home, your Net Equity Proceeds are the cash paid to you after your house sells and the title company settles all the debts including your costs to sell, and any remaining debts like a mortgage or outstanding property taxes. In our example, it looks like this:
Your Equity on Paper while living in the home is different and often significantly less than your Net Equity Proceeds after a sale. In our example, your equity on paper was $40,000, but after selling and covering all costs, your Net Equity Proceeds were $18,500.
The decision to sell your home isn’t always simple. You can read more in posts like these.
If you still have questions or want to talk through options with a real person, we have folks ready to help. Forget the robots and message apps, it’s as easy as picking up the phone.
