Home equity is a fickle thing that has many factors, but what happens when you foreclose on your home? Do you lose your equity? Does the bank take all of your money? In the end, if you have equity on the home, you get to keep it, but there are a few catches.

What Is Equity?

What is equity anyway? Here is a dumbed down explanation of it. Let’s say you buy a house that values at $250,000. When you bought the house, you put $50,000 on it, this means your equity on the house is $50,000. So, in other words, if you were to sell the home today, you would make $50,000 back and the remainder would go towards the mortgage. As you make payments on your mortgage and the market value of your home remains the same, you will gain more equity in your home.

When You Foreclose, You Still Get Your Money

Alright, let’s talk through a scenario. You bought a house 15 years ago and got a 30-year mortgage. You lost your job six months ago and have fallen behind on your payments. You decide that foreclosure is the best option for you.

You have a bunch of equity on the home and the value of your home has slowly increased over the last 15 years. So, let’s say you bought it for $200,000, and now it values at $265,000. You have been a faithful mortgage payer for 15 years and only owe just over $120,000 on the home. Well, that means you have $145,000 in equity on the home. 

Now that you are foreclosing though, don’t you think you should get that money back? It would only make sense. 

Fees Can Hurt

Alright, first off, because you are so behind on your mortgage, you have late fees. Those end up affecting your equity. With those fees affecting the equity, your equity will start to decrease. So, if we use the above scenario, let’s say those late fees equated to $10,000. You now only have $135,000 in equity. 

On top of those fees, the process of foreclosing actually costs money too. So, you start to lose more and more of your equity. This could be upwards of $20,000, leaving you with only $115,000 in equity.

The Home Appraisal

When a home goes up for foreclosure, the lender will often take the lowest appraised values. This way they can sell the home quickly. So, let’s say the lowest appraised value of your home ends up being $250,000 now. Well, that is a $15,000 decrease in your equity. You are looking now at $100,000 in equity.

On top of that, the lender usually will take an offer of only 90% of the appraised value so that they can sell the home quickly. So, the house then sells for $225,000. This would leave you with only $75,000 in equity.

Another Option

As you can see, you just lost half of your equity by going forward with your foreclosure. But, what if we told you there was another way? Sell your Jacksonville home to us. We will pay cash for it. There are no fees or commissions paid to us. We buy any house in any condition. Fill out the form below or call us at 904-780-5408 to get your cash offer.