What Is Home Equity? How to Calculate It in 2026

What is home equity? Home equity is the part of your home you actually own: your home's current market value minus what you still owe on your mortgage and any other loans secured by the property. If your home is worth $450,000 and your total mortgage debt is $300,000, your home equity is $150,000.

That simple definition matters because home equity is often one of the biggest pieces of a household balance sheet. It affects your net worth, your ability to borrow against your property, and how much cash you might walk away with if you sell. This guide explains what home equity is, how to calculate it, what to include, and the mistakes people make when they estimate it too casually.

What is home equity?

Home equity is the difference between your home's value and the debt attached to it.

Freddie Mac defines it in plain terms: your home's equity is the difference between how much your home is worth and how much you owe on your mortgage. The FTC uses a very similar definition and notes that equity is the difference between what you owe on your mortgage and the current value of your home, or how much money you could get if you sold it.

That means home equity is not:

your purchase price
your down payment by itself
your monthly mortgage payment
the amount a lender will automatically let you borrow

It is simply the ownership value left after subtracting secured debt from the home's current value.

How do you calculate home equity?

The formula for how to calculate home equity is straightforward:

Home equity = current home value - total loans secured by the home

In most cases, that means:

start with your best current estimate of market value
subtract your remaining mortgage principal balance
subtract any second mortgage or HELOC balance too

Here are a few simple examples:

Current home value	Mortgage balance	Other secured debt	Home equity
$400,000	$260,000	$0	$140,000
$525,000	$310,000	$0	$215,000
$525,000	$310,000	$25,000 HELOC	$190,000
$350,000	$355,000	$0	-$5,000

That last example matters. Home equity can be negative if the home's value falls below what you owe. People sometimes call that being "underwater" on the mortgage.

If you want a quick estimate, Freddie Mac offers a home equity calculator. But even if you use a calculator, the math underneath is still the same.

What counts in the home equity calculation?

The calculation only works if you use the right inputs.

1. What should you use for your home's value?

Use a current market-value estimate, not the amount you paid years ago.

A few common ways to estimate value:

an automated estimate like Zillow or Redfin
recent comparable sales in your area
a broker price opinion
a formal appraisal

For a personal-finance estimate, an online valuation or recent comps are usually enough. For a loan application, refinance, or major financial decision, your lender may require an appraisal or another formal valuation method.

Freddie Mac notes that for a more precise calculation, you can contact your loan servicer to determine the final payoff amount and pair that with your home's appraised market value.

2. What debt should you subtract?

Subtract all debt secured by the property, not just your main mortgage.

This can include:

your primary mortgage balance
a second mortgage
a HELOC balance
other liens tied to the property

This is where people often overstate their equity. They subtract only the first mortgage and forget that a HELOC also eats into the ownership value they actually control.

3. Should you use the loan balance or the monthly payment?

Use the remaining principal balance, not the monthly payment.

Your payment amount is not useful for this formula because it includes things like interest, escrow, taxes, and insurance. The number you need is the outstanding debt balance.

How do you estimate your home's value realistically?

If you are just trying to answer "what is my home equity?" for budgeting or net-worth tracking, perfection is not the goal. Consistency is.

Use one method and stick with it for a while:

If you use an automated estimate, keep using that same source each month or quarter.
If you prefer comps, compare your home to recent sales with similar size, condition, and neighborhood.
If you are preparing to sell, refinance, or borrow, get a more formal estimate rather than relying on one app.

The reason consistency matters is that your net worth trend becomes more useful when the valuation method stays stable. If you bounce between the highest estimate one month and the lowest estimate the next, you are not measuring progress. You are just creating noise.

If you already track your balance sheet, this works the same way as the guidance in What Is Net Worth and How to Calculate It and How to Track Your Net Worth in 2026: use realistic values and use them consistently.

What increases home equity?

Home equity usually grows in three main ways:

Paying down principal

As you make mortgage payments, part of each payment reduces the loan principal. That lowers what you owe and increases equity.

Home appreciation

If your home rises in value, equity can increase even if your mortgage balance barely changes. Freddie Mac specifically notes that appreciation is one of the main ways homeowners build value over time.

Improvements that raise market value

Some renovations or repairs can increase what buyers would reasonably pay for the property. That does not mean every dollar spent creates a dollar of equity, but improvements can help if they truly raise market value.

What decreases home equity?

Home equity can also shrink.

Common reasons:

falling home prices
borrowing against the home through a HELOC or second mortgage
missed payments that increase fees or balances
property deterioration that lowers market value

This is why home equity should be treated as a moving number, not a permanent fact. A hot housing market can make equity look bigger very quickly. A weak market or additional borrowing can reverse that just as quickly.

Is home equity the same as cash you can borrow or take out?

No. Total home equity and available borrowing power are not the same thing.

This is one of the biggest points of confusion. You might have $200,000 in equity on paper, but that does not mean a lender will let you borrow the full $200,000.

The FTC explains that the amount you can borrow depends on things like:

your income
your credit history
the market value of your home

The FTC also says many lenders prefer that you borrow no more than 80 percent of the equity in your home with a home equity loan. In practice, the usable amount is usually lower than your total equity once lender rules, fees, and risk limits are applied.

So there are really two different questions:

How much equity do I have?
How much of that equity could I safely and realistically access?

This article answers the first question. The second depends on the lender and your broader finances.

Should home equity count in your net worth?

Yes. In most personal-finance situations, home equity should count in your net worth.

Your house is an asset. Your mortgage is a liability. The net effect of both belongs on your balance sheet.

That does not mean home equity is the same as cash in the bank. It is less liquid, more expensive to access, and tied to local housing conditions. But it is still part of what you own.

That is why home equity shows up so often in broader wealth discussions. If you compare yourself to age-based benchmarks in Average Net Worth by Age in 2026, housing often plays a major role in the gap between households that are building wealth and those that are not.

If you want a fuller financial picture, home equity also should not live in isolation. The better question is how it fits next to your cash, investments, debts, and monthly surplus. That is the same reason many people outgrow disconnected bank and mortgage apps and start looking for a broader money dashboard.

What mistakes do people make when calculating home equity?

A few mistakes show up over and over:

Using the purchase price instead of current value

What you paid is historical. Equity is based on today's value.

Forgetting a HELOC or second mortgage

If there is debt secured by the property, it reduces equity.

Confusing sale proceeds with equity

Home equity is the balance-sheet number before selling costs. If you sell, commissions, closing costs, taxes, and repairs may reduce the cash you actually keep.

Treating automated estimates as exact

Online estimates are useful starting points, not guarantees. They can be directionally helpful without being perfectly accurate.

Ignoring home equity in your balance sheet

Some people go the other direction and leave the home out entirely. That can badly understate net worth, especially for households where property is the largest asset.

FAQ: What is home equity?

Is home equity the same as a down payment?

No. Your down payment creates initial equity, but your equity after closing changes over time with mortgage paydown and home-price movement.

What if my home value falls?

If your home value falls, your equity falls too. If it falls far enough, your equity can become very small or negative.

Does a HELOC reduce home equity?

Yes. A HELOC is debt secured by the property, so it reduces your net equity.

Should I include selling costs when calculating home equity?

For a simple personal-finance calculation, most people use market value minus secured debt. If you are estimating how much cash you would keep after a sale, then selling costs matter too.

Why does my lender's number look different from mine?

Your lender may use a different home valuation, updated payoff amount, or borrowing formula. That is normal. Your estimate is useful for planning, but a lender's underwriting process is what matters for a loan.

The bottom line

What is home equity? It is the value of your ownership stake in your home after subtracting what you still owe on the property.

If you remember one formula, make it this:

Home equity = current home value - total secured debt

That number matters because it affects your net worth, your housing options, and your overall financial flexibility. If you own property, it is too important to ignore and too large to guess at carelessly.

If you want to track home equity next to your cash, investments, crypto, and monthly surplus instead of keeping it in a separate mental bucket, Surplus Budget helps iPhone users keep the full picture in one place.

What Is Home Equity? How to Calculate It in 2026