For most people, purchasing a home represents the largest financial transaction they will undertake, and it is often viewed as a pathway to increasing net worth. According to CoreLogic, U.S. homeowners with mortgages held over $17.6 trillion in net homeowner equity in the second quarter of 2024. This equity grew by $1.3 trillion during that quarter, reflecting an 8.0% increase from the previous year.
In simple terms, home equity is the difference between your home’s market value and the remaining mortgage balance. However, homeowners don’t acquire this equity overnight. Typically, homeowners begin to see their equity and net worth rise within five to ten years. The rate of equity growth depends on several factors, including the down payment, loan term, credit score, and property value appreciation.
You can establish immediate equity when you make a down payment. For example, if you purchase a home priced at $250,000 and put down $17,500, your immediate home equity would be $17,500 (although you likely cannot tap this equity without transaction expenses). This equity continues to grow as you make mortgage payments, particularly as the portion of your payment that goes toward interest decreases.
Unlike rent, which is merely a recurring expense, mortgage payments serve as a forced savings mechanism, significantly contributing to wealth building. According to the Urban Institute, the median wealth gap between homeowners and renters has increased by 70%, reaching $390,000 over the past 30 years.