Definition:
Net worth is the total value of a person’s assets minus their liabilities. It shows what someone truly owns after subtracting debts from what they have.
Example:
Maria owns a home worth $400,000, has $50,000 in savings, and $20,000 in her retirement account. She also has a $250,000 mortgage and $10,000 in credit card debt. Her net worth is $400,000 + $50,000 + $20,000 – $250,000 – $10,000 = $210,000.
Explanation:
Net worth gives a snapshot of an individual’s financial health. Assets may include:
- Real estate
- Bank accounts and cash
- Investments (stocks, bonds, retirement accounts)
- Vehicles, valuable personal property
Liabilities are financial obligations such as:
- Mortgages
- Auto loans
- Student loans
- Credit card balances
- Other personal debts
In real estate, lenders may ask for a buyer’s net worth during the mortgage approval process, especially for larger or investment properties. It helps them evaluate whether the borrower has enough financial backing to handle payments, emergencies, and property upkeep.
Even if a buyer doesn’t earn a high monthly income, a strong net worth (like equity in a home or significant savings) can show financial responsibility and stability.
Why is Net Worth Important in Real Estate Transactions?
Net worth is important because it helps lenders and real estate professionals understand a buyer’s overall financial strength—not just income. For buyers, knowing their net worth can guide smart purchasing decisions and prevent overextending financially. For sellers, buyers with higher net worth may appear more reliable, especially in competitive markets. Understanding net worth brings confidence to both sides of a real estate deal.