How home equity drives financial wellness

Ever wonder why homeownership is such a common goal for achieving financial wellness? We talk about homeownership as a key life goal because it has real impacts on opportunities for you and your family. While there are many benefits to homeownership, access to home equity is perhaps one of the largest. Home equity, or put more simply, the difference between what you owe on your home and what your home is actually worth, can be a powerful tool for financial growth and mobility.

What is home equity?

Say you buy a house. To afford this purchase, you take out a loan that allows you to pay for the home over time (i.e. a mortgage). As you make your mortgage payment each month, you are gradually paying off your loan. The value of your home minus the remaining amount you owe on your mortgage if your home equity.

To calculate your home equity, you need two pieces of information: the current market value of your home and the amount you still owe on your mortgage. For example, if your home is worth $350,000 and you owe $200,000 on your mortgage, your home equity is $150,000. Once you know how much equity you have in your home, there are several ways you can utilize that value to benefit your overall financial health.

How does home equity benefit me?

Home equity is a significant asset, meaning you are building wealth as your home appreciates and you pay off your mortgage. This gives you increased borrowing power, and many homeowners choose to borrow against their home equity throughout their homeownership journey, enabling them to access financing for major investments such as home repairs, education, starting a business, healthcare, or other major expenses.

Homeowners can also realize their equity when they sell their home, providing them with cash they can use to put a down payment on a larger home, finance a cross-country move, pay for college or other major expenses, or just create a financial cushion for emergency situations. Equity in your home can also be passed down from parents to children, creating generational wealth that builds over time. In fact, homeownership is the way that most Americans generate generational wealth.

How can I grow my home equity?

You can grow your home equity in two primary ways: by paying down your mortgage or by home appreciation. In markets such as Atlanta’s, where housing values continue to steadily increase, homeowners are able to realize equity gains in a way that renters do not. According to a report by the National Association of Realtors, homeowners have a net worth that is about 40 times higher than renters. Home equity and retirement accounts make up 60% of a household’s net worth. If the market value of a home you own increases, you may be able to sell your home for more than what you paid for it, providing significant equity gains. Living in your home for longer can also increase your equity—as long as the market remains stable, the more you pay off your mortgage payment, the more equity you will gain in your home.

Home equity is a critical tool for financial wellbeing and is an important source of wealth for most Americans, especially Black families. In fact, for Black households, home equity accounts for more than 60% of their wealth. The ability to build equity in your home as you live in it is one of the many benefits of homeownership. As we enter year three of the Wells Fargo Wealth Opportunities Realized Through Homeownership (WORTH) initiative, the Community Foundation for Greater Atlanta and our collaborative partners are committed to ensuring all families in Atlanta who desire homeownership have a pathway to buy their own home.