Your owner’s equity is the amount that you have financially invested in the property, plus any appreciation (or less any decline) in value since acquiring the property.

Owner’s equity translates into less risk for the lender. What that means exactly is the more you are financially invested in your property- whether your loan was a mortgage, home equity loan, or an equity line of credit- the more the lender will perceive you as dedicated to maintaining your property to maximize your investment.

Owner’s equity in a home purchase

In the case of a home purchase, your owner’s equity begins when you make the down payment. Your down payment when combined with the mortgage loan amount equals the total sales price. After the home is purchased, the owner’s equity begins to grow in two ways: First, as the value of the home naturally rises over time, and second as you make your monthly payments on the unpaid principal balance, which decrease the outstanding mortgage.

Owner’s equity in a refinance

In the case of a refinance loan, your owner’s equity is the appraised value minus any mortgages using the property as collateral. In other words, it is the proceeds you would end up with after you sold your home, paying off the existing mortgages in the process.