Equity Question

undefinedWhat is the name of your state? Florida

If I purchase a house for $100,000 that has been appraised for $110,000, is it considered that I have $10,000 equity in that home?

[Souix]

Originally Posted by mikehow

undefinedWhat is the name of your state? Florida

If I purchase a house for $100,000 that has been appraised for $110,000, is it considered that I have $10,000 equity in that home?

***Equity is the amount you have between what you owe on the loan and what the appraised value is of the property***

[HomeGuru]

Yes, the mortgage loan is the key.

Florida

If equity is the difference between the amount of the loan and the appraised value of the home, does the mortgage loan also include interest as well as principle? For example, a loan of $100,000 would end up being much higher due to the interest being added to it. Would that interest also be included and then compared to the appraised value to determine equity?

[nextwife]

No. If I am figuring the equity in my house to buy another, for example, the mortgage will be paid off, so no additional interest is due once closed. Since any first mortgage loan is amortized, the principal continues to reduce over time, as does the monthly amount applied toward interest.

One does not add the lifetime interest!

[Souix]

You would also want to determine if you have a prepayment penalty, as in an FHA loan where interest is calculated on a monthly basis in the payoff instead of a per diem interest in the conventional type loans.

[nextwife]

And of course, the balance on any Jr. Mtgs, liens, and assessments (some sewer connection charges, for example, may be paid off over a decade) etc.

Of course, if I am simply trying to calculate my current equity for a financial statement and am not planning to sell, I need not deduct the prepayment penalty unless I plan on prepaying early. When we adopted our daughter, for example, we had to work up a financial statement for our dossier, and I do not believe that in such a case I would have worked in a prepay in figuring equity, as we were not planning to pay off early (not that there was a prepay, but you get the idea). Also, for many prepays, depending on the terms, you can prepay a limited amount per year (say 20% of balance as an example), WITHOUT being subject to a prepayment penalty). So some may choose to accelerate their ammortization and pay extra each month toward the principal, up to the limit.

And, on some adjustable mortgages, there is a window of opportunity to prepay without penalty within X days of a rate adjustment.

[Souix]

I guess my question to the OP would be, why are you asking....what are you trying to accomplish or figure out?

[HomeGuru]

Originally Posted by Souix

I guess my question to the OP would be, why are you asking....what are you trying to accomplish or figure out?

**A: now that's a decent question.