One of the many questions I receive from homeowners is, how do I find out how much equity I have in my home? This is a very important question, as it is the one factor that can determine whether you can or should sell your home, or even refinance it for a better rate; or to take out some cash for debt consolidation, home repairs or the like.
Knowing how much equate you have in your home also provides you with a better financial picture. Home Equity is simply the value of the ownership stake in your home. It is the difference between its current market value and the total sum of debts or liens (mainly but not exclusive to your primary mortgage) you have against your home.
First, you can figure out the equity in your home by subtracting the amount you owe on all your loans secured by your house from its appraised or market value. For example, Nicole owns a house recently appraised at $500,000. Nicole subsequently owes ABC Lender $150,000 as a mortgage on her home. We can calculate Nicole’s home equity in the figure below:
(Current Appraised/Market Value) – (Mortgage Balance/Loan Balance) = (Home Equity Value)
$500,000 – $150,000 = $350,000
If you are interested in calculating your home equity percentage, you can do so by dividing your home equity value with the current appraised/market value of your house.
(Home Equity Value) ÷ (Current Appraised Value) = Home Equity percentage
$350,000 ÷ $500,000 = $0.7%
Another method of calculating the equity in your home is through the loan-to-value formula or (LTV formula). Lenders use this method in all case when you are discussing encumbering your home with a loan. If you are interested in applying for a mortgage, Loan-to-Value Formula will compare the amount of the loan you are seeking against the current market or appraised value of your home.
To calculate your LTV, divide your current loan balance(s) with the current appraised or market value of your home. After that, the answer will be multiplied by 100 to find the percentage.
In the example given above, the $150,000 loan balance, will be divided by the $500,000 appraised value of your house. This will result in 0.3 multiplied by 100 equals to 30% LTV for your home.
Take note that LTV can affect if you must pay Private Mortgage Insurance(PMI) or if you qualify to refinance, 80% LTV is the max you can borrower to avoid paying PMI. Nonetheless, these are easy ways to calculate your home equity. Remember that Both LTV and home equity values will be subject to fluctuations depending on the market value of your home.
If you are a homeowner and interested in finding out the value of your home visit or website at www.bascombrealestate.com and visit the ‘What’s Your Home Worth’ tab, or email us at email@example.com, we are looking forward to hearing from you!