A home was bought 4 years ago. The purchase price was $92,000 and the buyer made a down payment of $11,000. The current loan balance is $79,000. The house was recently appraised for $116,000. What is the equity?

Rationale

The equity in the home is $37,000.

Equity is calculated by subtracting the current loan balance from the appraised value of the home. In this case, the appraised value is $116,000, and the current loan balance is $79,000, which results in an equity of $37,000.

A (13,000) YOUR ANSWER

This choice incorrectly calculates equity by underestimating the difference between the appraised value and the loan balance. To find equity, one must subtract the loan balance from the appraised value, which yields a significantly higher figure than $13,000.

B (24,000) YOUR ANSWER

This option also miscalculates equity by not accurately reflecting the difference between the appraised value of $116,000 and the loan balance of $79,000. The calculation does not align with the proper formula for determining equity, leading to an understated value.

C (35,000) YOUR ANSWER

While this choice is closer to the correct answer, it still fails to account for the full difference between the appraised value and the loan balance. The proper calculation results in $37,000, not $35,000, indicating this choice is still incorrect.

D (37,000) CORRECT

This is the correct calculation of equity. The equity is derived from subtracting the loan balance of $79,000 from the appraised value of $116,000, resulting in an equity of $37,000.

Conclusion

Equity represents the homeowner's stake in the property, calculated by subtracting the outstanding loan from the property's appraised value. In this case, the appraised value of $116,000 minus the loan balance of $79,000 leads to an equity of $37,000, which accurately reflects the homeowner's financial interest in the property.

A home was bought 4 years ago. The purchase price was $92,000 and the buyer made a down payment of $11,000. The current loan balance is $79,000. The house was recently appraised for $116,000. What is the equity?

The equity in the home is $37,000.

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