Most homeowners understand the conceptꦍ of home equity. But, some may be confused about the topic and what it entails. As a homeowner, you need to understand how home equity works. This is especially true if you want to refinance a mortgage or borrow against your residence. Knowing how to calculate the equity in your home can make you a more empowered borrower. To calculate it, subtract the balance owing on your mortgage from the total market value of your property.

How Much Home Equity Do You Have?

As noted above, your 澳洲幸运5开奖号码历史查询:home equity value is the difference between the current market value of your home and the total sum of debts registered against it. In many cases, this is your primary mortgage. If you have a second mortgage, you'll have to deduct ☂this as well.

The credit available to you as a borrower through a 澳洲幸运5开奖号码历史查询:home equity loan depends on how much equity you have. Suppose your home is worth $250,000 and you owe $150,000 on your mortg🤪age. Simply subtract your remaining mortgage from the home's value, and you'll end up with $100,000 in home equity.

How Should You Appraise Your Home?

There are a few ways to appraise your property if you're looking for a home equity loan and need to estimate the worth of your home for the loan. The most straightforward way is to hire an independent third party. This is a 澳洲幸运5开奖号码历史查询:professional appraiser who may provide an accurate a﷽nd unbiased assessment of th🧔e value of your home. Keep in mind that this can be expensive.

Numerous internet programs can estimate the value of your house based on available data, such as previous home sales in your region and local real estate trends. While these estimatesไ may not be as precise as a professional appraisal, they can be a good place to start. Note that some forms of these loose estimates may not be accepted by a lender issuing a home equity loan.

Instead of regional data, you can also estimate your property value by tracing down specific recent house sales in your region. In some cases where regional data is not a suitable comparison, specific sale information can provide you with an indicatio🎐n of what comparable homes are selling for. 🌠Keep in mind that your home may have unique qualities that affect its value.

Be mindful tha🎐t no matter which method you prefer, your lender may have loan requirements that dictate the method in which 🌠your property is appraised when you pursue a home equity loan.

How Much Can You Borrow?

Very few lenders will let you borrow against the full amount of your home equity. They generally allow you to borrow a maximum of 80% to 90% of available equity, depending on your lender, credit, and income. So, if you have $100,000 in home equity, as in the example above, you could get a 澳洲幸运5开奖号码历史查询:home equity line of credit (HELOC) of $80,000 to $90,000. Race, national origin, and other non-financial considerations should never play a role in determining how much home equity you can borrow.

Here's a second example that accounts for a few additional factors. Suppose you are five years into a 30-year mortgage on your home. A recent appraisal or assessment places the market value of your house at $250,000. You also still have $195,000 left on the original $200,000 loan. Remember, almost all of your early 澳洲幸运5开奖号码历史查询:home mortgage payments go toward paying down interest.

If there are no other obligations tied to the house, you have $55,000 in home equity. That equals the $250,000 current market value minus the $195,000 in debt. You can also divide home equity by the market value to determine your home equity percentage. In this case, the home equity percentage is 22% ($55,000 ÷ $250,000 = 0.22).

Now, let's suppose you also took out a $40,000 home equity loan in addition to your mortgage. The total indebtedness on the property is $235,000 insꦓtead of $195,000. That changes your total equity to just $15,000, dr🎃opping your home equity percentage to 6%.

How Should You Account for Transaction Fees?

Real estate is one of the most illiquid assets, so there is usually a cost associated with tapping into your home equity. If you sell the house, total 澳洲幸运5开奖号码历史查询:closing costs are typically between 2% and 5% in the United States. Buyers usually꧋ pay many of these charges, but be🅷 aware that they could use these fees as an excuse to negotiate a lower sale price.

If you take out a home equity loan, you will probably have to pay some type of loan 澳洲幸运5开奖号码历史查询:origination fee. Interest rates are also generally higher for second mortgages and HELOCs than for the original mortgage. After🎶 including these transaction costs, the amount of home equity you can use is lower than the amount you have in theory.

Home Equity and Loan-to-Value (LTV) Ratio

Another way to express equity in your home is through the 澳洲幸运5开奖号码历史查询:loan-to-value (LTV) ratio. It is calculated by dividing the remaining loan balance by the current market value. Using the secon꧂d example described above, your LTV is 78%. (Yes, it's the flip side of your home equity percentage of 22%.) With your $40,000 home equity loan thrown in, it climbs to 94%.

Lenders don't like a high LTV because it suggests you could have too much leverage and might be unable to pay back your loans. During times of economic upheaval, they can tighten their lending standards. That happened during the 2020 economic crisis. Especially for HELOCs, banks raised their 澳洲幸运5开奖号码历史查询:credit score requirements from the 600s to the 700s. They also lowered the dollar amounts and the pꦜercentage of home🌸 equity that they were willing to lend.

Both LTV and home equity values are subject to fluctuations when the market value of a home changes. Millions of dollars in supposed home equity were wiped out during the 澳洲幸运5开奖号码历史查询:subprime mortgage meltdown of 2007–2008. 澳洲幸运5开奖号码历史查询:Prices don't always go up. The 😼long-term impact of 2020 on𒊎 home equity remains uncertain.

Home prices saw global price increases through 2021 due to the stay-at-home policy and people looking✅ for bigger homes to fit their work, schooling, and life. The gওrowing work-from-home policies adopted by companies also incentivized many families to move to the suburbs from the city.

The Bottom Line

To calculate your home equity, you'll need to determine the current market value of your home. This can be obtained by getting a professional appraisal or using an online home value estimator. Then, subtract how much you owe on your mortgage; this residual value is your equity position.