How does equity in a home make money upon resale?

Question

I am completely lost on the concept of buying a home and the selling it before the mortgage is paid. How does this make money/contribute to a new mortgage?

In: Economics

Answer 1

Buy a house for $400k with 10% ($40k down) and $360k mortgage. Over 5 years, you pay down the loan to $300k owed. And the value of the home is now $500k. So when you sell for $500k and pay back the balance on your loan, you have $200k remaining as your equity. Your original $40k down payment, the mortgage principal you’ve paid, and the $100k gain in value.

So now, instead of $40k for a down payment, you have $200k down. You could put down 20% and still be able to get a $1m house.