Most people don't have enough money to buy a house with out borrowing some funds. When they buy a house, they pay for part of it, and take a loan (usually in the form of a mortgage) to pay for the rest of it. Equity is basically the portion of the house that has been paid by the owner.
For example (this example is unrealistic; it is oversimplified),
- if an owner paid a quarter of the value of a home originally (the downpayment), and over time, the owner has paid a mix of interest plus another quarter of the principle, the owner now has equity of half the value of the house.
Now, some of the ways this example is oversimplified is that it didn't explain that the interest is usually paid first and the value of the house changes over time. To calculate the current equity, you need to know the current fair value of the asset or home and how much is still owed. Subtract the amount owed from the value to get the current equity.
There are other ways to arrange to buy a house when you don't have the full amount. (Could you help us fill in this part? Do you know about those methods?) More to come...