What does "equity" refer to in real estate?

Equity in real estate refers to the financial interest or ownership that a homeowner has in their property. It is defined as the difference between the property’s current market value and any outstanding debts, such as mortgages or liens that are secured against it. Essentially, equity represents the portion of the property that the owner actually owns outright, as opposed to what is financed through loans.

For example, if a home is valued at $300,000 and the owner has a mortgage of $200,000, the equity in the property would be $100,000. This concept is crucial for homeowners as it not only signifies their stake in the property but can also be utilized for financial planning, such as obtaining loans or lines of credit based on that equity.