I’ve read a few books and seen endless YouTube videos on equity but I wanted to know if there is a different name for certain types of equity. If there are, I must have overlooked them. Let me explain
I bought my house at $245K and paid it down to $222K giving me $23K in what I’ve named “Solid Equity” because it’s backed by actual payments.
My house is now worth $310K which gives me $88K in Equity which I’ve named “Appraised Equity” because it’s based on the property value.
Is there a name for these types of equity? How dangerous is it to invest using “Appraised Equity” if the market goes down and your house is upside down?
Rental Property Investor · Smyrna, GA · Member since 2018 · 974 posts · 645 votes
6y
Hi @Ibrahim Yamini! There is no difference in the two that I know of... but you are right to be careful. The appraised equity is what the banks will go on to give you a HELOC or Refinance. It is rare (although you can find them) to get banks to lend on more than 90% of the appraised value of your home so you are inherently protected somewhat already. Using your example: Home is worth $310K, you owe $222. You have 28% equity. Typically you can get a HELOC for 80% LTV. So you'd be able to get a HELOC for $26K = (80% * $310K = $248K - $222K) So if the market goes down, you'd still (more than likley) be able to sell your home and pay off your mortgage (and HELOC).