When obtaining a home loan, you’ll receive two important documents from your lender: a loan estimate and a closing disclosure. On the surface, these documents are very similar, but they both serve different purposes. Here’s what you need to know about the differences between these two forms and what each means for you:
Understanding Home Equity & Your KC Home Loan
The word “equity” comes up in many conversations around loans, but often the subjects of these conversations vary greatly. Therefore, it can become confusing as to what home equity is and how it relates to your KC home loan.
A Brief Definition of Equity
If you are a homeowner, more than likely a bank or qualified lender provided the money for most—or at least part—of the home’s value. Therefore, your home equity is the amount of your home’s value that you officially own. For example, if you make a 15% down payment on a house, you have a home equity interest of 15%. As you make your monthly payments towards your KC home loan, your equity increases little by little. However, your home equity is not determined by your mortgage payments alone; your equity will fluctuate with the housing market as your home’s value increases or decreases.
How to Build Home Equity
You can accumulate equity for any type of home loan, including government-backed and conventional KC home loans. There are many ways to build your equity more quickly than standard monthly payments, including:
- Making larger mortgage payments
- Making biweekly mortgage payments
- Improving the value of your home with home improvements & maintenance
How Equity Helps Your Financial Status
Equity has a cash value. Therefore, equity contributes to your total net worth, making it an asset often used for:
- Home equity loans
- Reverse Mortgages
While these actions may be beneficial or unavoidable, they essentially lower your home equity. In some cases, you may have to start from scratch and second mortgages can have as many disadvantages as advantages. Talk to an experienced loan officer before you use home equity for a secondary loan.