How Much Equity Should I Have in My House Before Selling?

What Sellers Need to Know About Home Equity

Those who feel it's the right time to move forward and sell their home aren't alone. According to an analysis by the National Association of Realtors®, owners tend to stay in a home for an average of 10 years before selling, and homeowners in metropolitan areas with a high concentration of new residents appear to pack up and move even more frequently. Homeowners ready to sell their property and transition into a new phase of life will indeed have a few questions such as:

  • How much money will be left after the sale?
  • How does equity in the current home factor into the selling process?
  • Do I need to have equity to sell?
  • How much equity is ideal before selling?
  • What happens to equity after completing the sale?

Do these questions sound familiar? Read this short guide about home equity and the selling process for all the answers, and you can gain the confidence of a real estate professional!

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What Is the Meaning of Amortization In Real Estate?

Before getting into the concept of equity, it's essential to understand what amortization in real estate is. An amortization schedule is a buyer's monthly loan payment schedule. The amortization schedule indicates the percentage of each mortgage payment that goes towards interest and the portion that pays off the home's principal. Over time, a piece of every payment will pay down the principal balance, which is how buyers accrue home equity.

The Formula for Calculating Equity

To calculate how much equity is in a home, owners will subtract any amounts owed on the mortgage, home equity loans, or unpaid credit balances from the home's current value. The home equity formula looks like this:

Current market value – Outstanding mortgage balance = Home equity

Let's look at an example. A hypothetical home has a market value of $500,000, and the owner still owes $200,000 on his mortgage loan.

$500,000 – $200,000 = $300,000 in home equity.

Is It Necessary to Have Equity to Sell a Home?

No, sellers don't have to have any equity in the home to sell the property, but those who don't will have to cover any costs that aren't covered by the sale price. This may mean paying off a portion of the remaining mortgage or current loans on the home. There are also sales costs such as listing fees, agent commissions, taxes, and the cost of moving to a new home.

What's the Ideal Amount of Equity for a Home Sale?

That depends on many factors and what the seller's goals are. Those downsizing might only need a minimal amount of funds remaining after the sale to make a down payment compared to those looking to buy a larger home. In addition to a down payment, sellers will need to have enough for moving costs, sales costs, taxes, and other expenses to get started in a new location.

Essentially, no ideal amount of equity fits all situations, but the more equity you have, the more money you'll have left over after the sale. It could go towards a new home, savings, or used to boost the holdings in a retirement or investment account.

Considering Selling a Home Soon?

Not every homeowner is in an ideal seller's home equity situation. This may make buying a new home a bit more challenging. Should sellers need more time to move but want to sell now in a hot market, certain programs allow buyers to remain in their homes after the sale while looking for a new place.

Want to get top dollar for your home now and still take your time finding the perfect property for the next portion of your ownership journey? Give us a call and let's get talking. 

Sell Now,
Move Later,

with Laurie Finkelstein Reader

Selling your home? The SELL NOW, MOVE LATER program eliminates the stress of selling and buying, maximizes the chance of getting a great price for your home, and gives you more time to move.

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