Equity is the difference between assets and liabilities. Home equity is simply the difference between the debt obligation and the home's worth. Homes may be worth more than the market value. The best way to get equity in a home is paying down the mortgage. Mortgages are considered good debt because the debt burden shrinks as the value rises. Presumably, the mortgage could be paid off by the sale of the property.

For most people, their home is their largest investment. Non-financial assets such as a home or the home equity usually account for 70 percent of total assets for many families. Equity is important based on the fact it accounts for 70 percent of what most people are worth. A homeowner's property value must exceed the debt obligation before it can be said to have equity. Home equity at one time was a ready source of funds for remodeling, emergencies and even vacations.

Instead of refinancing or taking out an equity loan, homeowners may use the property value to obtain a personal loan. Equity is essential not only as a source of funds but also as collateral for loans. Property is an investment whether it was purchased for that purpose or not. Homeowners who have paid the mortgage off expect the home value to exceed the purchase price.

Simply making payments every month may not be enough anymore to acquire equity in the home. A 30 year, fixed rate mortgage can be decreased to a 23-year mortgage by making one extra mortgage payment a year. Making bi-weekly payments will do the same thing as they add one extra payment a year. Many lenders will charge a fee to set the homeowner up on bi-weekly payments. The additional payment must be applied to the principal amount. This obviously builds up equity and reduces the debt faster.

Because of the housing market downturn, it is a good idea to make one additional payment a year or even more to build equity. Home value does not rise overnight anymore. Homeowners must be pro-active in reducing the principal amount.

Home improvements can also increase the value of a home. Money spent on updating a home will show a positive return on investment. Bathroom and kitchen remodels can exceed a 100 percent return on investment. Have an appraisal done to place a value on the property, and use the appraisal to guide remodel investments. Spend money where it will show a better return. An appraisal will differ from a market analysis as it will show the property value taking sales in the area into consideration.