Equity of my new home??

Question

I moved into my home in August. I bought the house for 235k. I’ve been here for 5 months now. The house was brand new no equity whatsoever. After being here for 5 months is there any equity in my home yet?

Aaron H. · Answer

The way you phrase your question, I'm not sure you're using the word "equity" right. Your equity is the total value of the property, minus the balance of any outstanding mortgage/loans on the property. Whether the house is "new" or not doesn't make any difference.

If you bought the house for 235K, you probably bought it with a mortgage and a down payment, yes? Presumably, you paid what the house was worth. So:

235K - Value of house

60K - Down payment

175K - Mortgage amount

So, 235 - 175 = 60K. You started off with 60K in equity in the house.

After 5 months, you've made 5 mortgage payments. A small portion of those payments is going to pay down the balance of your mortgage, so if you paid let's say $200/m in principal, you'd have an extra $1,000 in equity built up.

Alternately, if the market was really hot and the value of your house has appreciated in the last 5 months (let's say someone would now pay you 245K for it), then you made 10K in equity, because the house is worth more, but the mortgage value is (more or less) the same. Alternately, if the market tanked and the house is now only worth 200K, you lost a bunch of equity.

Either way, after 5m the equation is unlikely to have changed very much. Your current equity is probably the same as whatever your downpayment was, plus a few hundred bucks in principal paydown.