Equity is the amount of a home’s value that the homeowner actually owns, once mortgages are paid off. If a home’s fair market value is $400,000 and there is a $300,000 mortgage against it, the homeowner has $100,000 in equity.

As a practical matter, when a home is being sold, the amount of equity in the home must be reduced by the amount of closing costs and taxes that the seller must pay to sell the home. The resulting amount is known as net proceeds.