Knowing how much equity you have in your home is important. Whether you are thinking about refinancing, taking out a home equity loan, or you just want to know how much you have invested in your home, there’s an easy way to find out.
Just follow these simple steps.
Find Your Property Value
In order to get a true reading on your current home equity, you need to know the current value. Chances are that the value has changed since you bought the home. It could be for the better or the worse. You won’t know until you find out the value.
Luckily, you don’t have to pay for another appraisal. You can find out your approximated value by using an online value estimator. You can find them on Zillow, Chase, or Redfin. All you have to do is enter your property address and the program will give you an estimated value in seconds.
If you don’t want to rely on the online estimators, you can call a loan officer at your local bank or your local real estate agent to obtain the information you need. If you do want an accurate home value, though, you will have to pay for the appraisal, but it may be worth it to you.
Find Your Loan Balance
The next figure you need is your outstanding loan balance(s). If you have more than one mortgage, you’ll need the outstanding balance of all loans on the home. You can look at your latest mortgage statement, log into your account online, or call your mortgage provider to get an accurate figure for your outstanding loan balance.
Figuring Out Your Home Equity
Once you have these two numbers, you can determine how much equity you have in your home. Use the following formula:
Home’s value – Total outstanding mortgage balances = Home equity
Here’s an example:
Your home is worth $350,000 according to your local real estate agent. You have two mortgages on the home. The first has a balance of $150,000. The second has a balance of $50,000. Your home equity equals:
$350,000 – $200,000 = $150,000 equity
Using Your Home Equity
Now, if you want to tap into your home’s equity, you’ll also need to know your LTV or Loan-to-Value Ratio. The LTV is what lenders use to decide if they will lend you the money. Typically, lenders don’ t like to lend you more than 80% of the home’s value for any type of cash-out refinance or home equity loan.
You can figure out the LTV with the following calculation:
Outstanding mortgage balance/Home’s value
In the above example, you would have an LTV of 57%. Most lenders would be happy to give you a loan that taps into that equity assuming you have the credit and income to qualify for it.
On the other hand, if you had a loan balance of $300,000 on that $350,000 home, you would have an LTV of 86%. It might be tougher to find a lender willing to give you a loan.
Knowing how much equity you have in your home can be useful information. It’s not a bad idea to check out your investment periodically just to know where you stand should you decide to move in the near future.