What does the term equity mean in real estate?

Equity in real estate refers to the difference between a property's market value and the amount owed on any mortgages or liens against that property. This is a crucial concept for homeowners and investors because it represents the actual ownership stake a person has in a property.

As the property appreciates in value or as the mortgage balance decreases through payments, the equity in the property increases. This value can be tapped into if needed, for instance, through a home equity loan or line of credit.

Understanding equity is essential for real estate transactions, as it impacts the net worth of the owner and can influence decisions related to selling, refinancing, or making improvements to the property. It is a key factor that financial institutions consider when evaluating loan applications for home equity loans or lines of credit.