What Is Real Estate Equity?


Equity is the difference in what your property is worth minus any money you owe on it. Positive equity means you owe less on your house than it's market value. Negative equity means just the opposite- your total loan balance is more than the house is worth on the open market.

Upside Down

Negative equity is sometimes referred to as being "upside down" or "under water." That can happen for a variety of reasons, including falling housing prices.

Creating Positive Equity

Large down payments can create immediate equity and offer a cushion even if home prices decline. The typical suggested standard for down payments is 20 percent, according to a report by CNN.com

Location, Location

Another way to create positive equity is by buying into stable neighborhoods with good schools. Homes in those communities are more likely to increase in value.

Avoiding Negative Equity

Home prices obviously can fall at any time, making no-money-down deals risky. Additional mortgages taken out after the purchase also reduce the amount of equity.

Overcoming Negative Equity

Loan modification programs may help, according to the personal finances website Rebuild.org. Also, falling home prices could eventually turn the other way.

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