Does Home Equity Count Towards Net Worth? Full 2026 Guide

How to Calculate Home Equity in Net Worth

Home equity is the portion of your home you own outright, free of mortgage debt. To calculate it, subtract your outstanding mortgage balance from your home’s current market value. For example, if your home is worth $400,000 and you owe $150,000, your equity is $250,000. This figure represents the largest asset for most U.S. households, accounting for 50–70% of total wealth according to LegalClarity (March 2026). For a family with a $600,000 home and $200,000 mortgage, equity jumps to $400,000—nearly double the average American household’s net worth.

The formula is straightforward: Current Market Value – Outstanding Mortgage Debt = Equity. However, this basic calculation assumes a stable market and immediate liquidity—both of which rarely apply. As the White Coat Investor notes, subtracting 6% of your home’s value for realtor fees (e.g., $24,000 on a $400,000 home) provides a more realistic net value if you plan to sell. Consider a $500,000 home with a $150,000 mortgage: pre-adjustment equity is $350,000. After subtracting 6% for fees, equity drops to $325,000. For high-value homes ($1 million+), fees could exceed $60,000, significantly reducing usable equity.

Market volatility further complicates calculations. In 2023, the U.S. housing market saw a 12% drop in home values in some regions, while others rose 8% (LegalClarity). This means a $500,000 home could be worth $440,000 in a downturn, reducing equity by $60,000. Conversely, a $300,000 mortgage on a $500,000 home in a rising market becomes $300,000 equity on a $540,000 home. Regular appraisals and Zillow-style estimates help track these changes.

When Home Equity Doesn’t Count

While home equity is typically included in net worth, several legal and financial scenarios exclude it. For instance, Medicaid eligibility for seniors or disabled individuals excludes home equity entirely. Similarly, bankruptcy exemptions in many states protect up to $250,000 of equity, shielding it from liquidation. Public companies also omit home equity from SEC filings, treating it as a non-operational asset.

Retirement planning is another exception. SoFi and AOL note that retirement calculators often exclude home equity to focus on liquid assets like stocks or savings. This creates a paradox: your home may be your largest asset, but it’s often ignored when projecting retirement income. For example, a 65-year-old with $300,000 in home equity and $200,000 in retirement savings might be told they need $1 million to retire—ignoring the $300,000 they could access via a reverse mortgage.

Bankruptcy rules vary by state. In California, you can protect up to $750,000 in home equity (as of 2026), while Texas offers no exemption. This means a California homeowner with $800,000 equity might keep their home in bankruptcy, while a Texas homeowner with the same equity could lose it. Always check local laws before assuming equity is protected.

Adjustments for Real-World Value

Home equity is not as liquid as cash or investments. To reflect this, subtract potential selling costs. The White Coat Investor recommends deducting 6% for realtor fees, while LegalClarity suggests factoring in a 10% buffer for market volatility. For a $400,000 home, this adjustment reduces equity from $250,000 to $190,000—a 24% drop. In a $1 million home, fees could strip $60,000, leaving $940,000 in equity after selling.

Another critical adjustment is illiquidity. Unlike stocks, you can’t convert home equity to cash overnight. Home Equity Lines of Credit (HELOCs) offer a workaround, but they add debt to your net worth calculation. HomeEQ explains that tapping equity through a HELOC reduces net worth by the loan amount, as it increases liabilities without boosting assets. For example, a $100,000 HELOC on a $250,000 equity balance reduces net worth to $150,000.

Hidden costs also matter. Closing fees (3–5% of sale price), title insurance ($1,000–$2,000), and transfer taxes ($1,000–$5,000) further reduce equity. A $400,000 home with 6% fees, 4% closing costs, and $2,000 in taxes leaves only $342,000 in usable equity. These adjustments matter for accurate net worth tracking.

Retirement Planning and Home Equity

Retirement calculators often exclude home equity, prioritizing liquid assets like IRAs or 401(k)s. This approach assumes you’ll sell your home or use a reverse mortgage to access equity in retirement. However, SoFi warns that relying on home equity for retirement can be risky due to market fluctuations and rising realtor fees. A $500,000 home might lose 15% in value during a downturn, reducing equity by $75,000—equivalent to a 15% drop in retirement savings.

Alternatives include using a HELOC to fund expenses or gifting equity to heirs through estate planning. LegalClarity emphasizes that while home equity is a key component of net worth, its role in retirement depends on your ability to convert it into usable cash without incurring penalties. For example, a 72-year-old with $300,000 equity might use a reverse mortgage to receive $1,500/month for 10 years, but the loan balance would grow to $180,000, reducing heirs’ inheritance.

Downsizing is another strategy. Selling a $500,000 home and buying a $300,000 condo frees up $200,000 in equity. However, moving costs (e.g., $15,000) and potential tax liabilities on the $200,000 gain (up to $20,000 in taxes) reduce net proceeds to $165,000. This trade-off must be weighed against retirement needs.

10 Key Facts About Home Equity and Net Worth

1. Home Equity Is Part of Net Worth

According to HomeEQ and LegalClarity, home equity is included in standard net worth calculations as an owned asset minus liabilities.

2. Largest Asset for Most Americans

For 70% of U.S. households, home equity is the largest asset, often surpassing retirement savings or investments (LegalClarity, March 2026).

3. Formula: Market Value – Mortgage Debt

Net equity = home’s current value minus outstanding mortgage balance. A $500,000 home with a $200,000 mortgage has $300,000 in equity.

4. Medicaid Excludes Home Equity

Seniors or disabled individuals applying for Medicaid can exclude home equity from their net worth (LegalClarity, March 2026).

5. Bankruptcy Exemptions Vary

Some states protect up to $250,000 of equity in bankruptcy, while others offer no protection (HomeEQ).

6. Subtract Realtor Fees

Discount home value by 6% to account for realtor commissions (White Coat Investor).

7. Illiquid Asset

Home equity cannot be accessed instantly, unlike stocks or savings accounts (AOL, May 2026).

8. HELOCs Reduce Net Worth

Using a HELOC adds debt to your liabilities, lowering net worth by the loan amount (HomeEQ).

9. Market Volatility Impacts Equity

Home values fluctuate with local markets, making equity less reliable than stocks (LegalClarity).

10. Rental Property Rules Differ

Rental or vacation home equity may be treated differently in net worth calculations, depending on context (inferred from research gaps).

Did You Know? Hidden Costs of Selling Your Home

Selling a home involves more than just the mortgage payoff. Realtor commissions (typically 6%), closing costs (up to 3% of the sale price), and potential tax liabilities can reduce your equity. For a $400,000 home, these fees could cost $24,000 in commissions and $12,000 in closing costs, leaving only $364,000 of usable equity. In a $1 million home, fees could strip $60,000–$70,000 from equity. Additional costs like home inspections ($500–$1,000), repair costs ($10,000+), and title insurance ($2,000) further erode value. Always factor in these expenses when calculating net worth.

FAQs: Home Equity and Net Worth

Should I include my home in net worth if I don’t plan to sell?

Yes, but consider adjusting for illiquidity. Even if you don’t plan to sell, home equity is a key asset in your net worth unless excluded by legal or financial rules. For example, a $500,000 home with $150,000 mortgage has $350,000 equity, but subtract 6% for fees ($30,000) and 10% for market risk ($50,000) to reflect $270,000 in usable equity.

How does home equity affect Medicaid eligibility?

Home equity is excluded from Medicaid calculations for eligible seniors or disabled individuals, as per LegalClarity (March 2026). For example, a 70-year-old with $400,000 equity and $200,000 in savings would only count the $200,000 for Medicaid purposes.

Do I subtract my mortgage or just the remaining balance?

Subtract your remaining mortgage balance from your home’s current market value to calculate equity. A $600,000 home with a $150,000 mortgage has $450,000 equity, while a $300,000 home with a $200,000 mortgage has only $100,000 equity.

Is rental property equity counted differently than a primary home?

Rental property equity is typically included in net worth but may be treated differently in legal or financial contexts, depending on the scenario. For example, a $400,000 rental home with $100,000 mortgage has $300,000 equity, but tax rules may require separate reporting.

Why isn’t home equity counted in retirement savings?

Retirement calculators prioritize liquid assets. Home equity is often excluded unless you plan to sell or use a reverse mortgage. For example, a $500,000 home with $200,000 equity might not be counted unless you’re downsizing or using a HELOC.

How do I adjust for realtor commissions when calculating net worth?

Subtract 6% of your home’s value to account for realtor fees, as recommended by the White Coat Investor. A $500,000 home becomes $470,000 after a $30,000 fee, while a $1 million home drops to $940,000.

Conclusion: Final Verdict on Home Equity and Net Worth

Home equity is a cornerstone of net worth for most Americans, but its inclusion depends on context. While standard calculations include equity as an owned asset minus liabilities, legal and financial scenarios like Medicaid or bankruptcy may exclude it. Adjust for real-world factors like realtor fees, market volatility, and illiquidity to reflect practical value. For example, a $500,000 home with $150,000 mortgage has $350,000 equity, but subtracting 6% for fees ($30,000) and 10% for volatility ($50,000) leaves only $270,000 in usable equity.

Retirement planning further complicates the equation, as calculators often ignore home equity unless you plan to sell or use a reverse mortgage. By understanding these nuances, you can make informed decisions about your wealth strategy. Remember: home equity is a powerful asset—but it’s not always as liquid or flexible as it appears on paper. Always factor in hidden costs, market risks, and legal exceptions to build a realistic net worth picture.