{"id":17059,"date":"2022-11-22T07:46:50","date_gmt":"2022-11-22T15:46:50","guid":{"rendered":"https:\/\/westcapitallending.com\/?p=17059"},"modified":"2022-11-22T07:46:50","modified_gmt":"2022-11-22T15:46:50","slug":"how-do-i-calculate-how-much-home-equity-i-have","status":"publish","type":"post","link":"https:\/\/westcapitallending.com\/blog\/how-do-i-calculate-how-much-home-equity-i-have\/","title":{"rendered":"How Do I Calculate How Much Home Equity I Have?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Many people are still confused about home equity, even though it&#8217;s a widely-discussed topic nowadays. As a homeowner, you need to understand how home equity works \u2014 especially if you&#8217;re looking into refinancing your mortgage or borrowing money from your residence.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Home equity is the difference between the appraised value of your house and the amount you owe on your mortgage. The amount of equity in your property has many ramifications for your finances, from whether or not you require private mortgage insurance to what financing alternatives are accessible to you. The value of your home equity can go up or down depending on market conditions in your area. Here&#8217;s a quick guide to help you calculate how much equity you have and some tips for increasing it.<\/span><\/p>\n<h2><b>Key Takeaways<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The difference between the current value of your house and its outstanding mortgage is known as home equity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Lenders will usually not allow you to borrow against the total value of your home equity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Under average economic conditions, you could potentially borrow up to <\/span><b>90%<\/b><span style=\"font-weight: 400;\"> of your equity.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">During the <\/span><b>2020 <\/b><span style=\"font-weight: 400;\">financial crisis, lenders restricted access to home equity and raised credit score requirements, particularly for HELOCs.<\/span><\/li>\n<\/ul>\n<h2><b>How Much Home Equity Do You Have?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The difference between the current market value of your property and the total amount of debts (particularly your primary mortgage) recorded against it is known as your home equity value.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The current equity determines the amount of credit you can access as a borrower through a home equity loan. Let&#8217;s say your house is valued at <\/span><b>$250,000<\/b><span style=\"font-weight: 400;\">, and you still owe <\/span><b>$150,000<\/b><span style=\"font-weight: 400;\"> on your mortgage. If we subtract what you owe from the home&#8217;s total value, that leaves us with <\/span><b>$100,000<\/b><span style=\"font-weight: 400;\"> in home equity.<\/span><\/p>\n<h2><b>How Big a Home Equity Loan Can You Get?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Only some lenders will let you take out a loan for the total value of your home equity. They usually allow loans worth <\/span><b>80% to 90%<\/b><span style=\"font-weight: 400;\"> of available equity based on the lender, credit score, and income. So, if you have <\/span><b>$100,000<\/b><span style=\"font-weight: 400;\"> in home equity, as seen in the example above, you could qualify for a HELOC of<\/span><b> $80,000 to $90,000<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here&#8217;s another scenario that incorporates a few more elements. Assume you have a <\/span><b>30-year<\/b><span style=\"font-weight: 400;\"> mortgage on your home and are <\/span><b>five <\/b><span style=\"font-weight: 400;\">years into it. Furthermore, a recent appraisal or assessment valued your property at <\/span><b>$250,000<\/b><span style=\"font-weight: 400;\">. You also still have <\/span><b>$195,000<\/b><span style=\"font-weight: 400;\"> outstanding on the original <\/span><b>$200,000<\/b><span style=\"font-weight: 400;\"> loan. Keep in mind that the vast majority of your early house mortgage payments go toward reducing the principal balance.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If no other obligations are tied to the house, you have<\/span><b> $55,000<\/b><span style=\"font-weight: 400;\"> in home equity. That equals the <\/span><b>$250,000<\/b><span style=\"font-weight: 400;\"> current market value minus the <\/span><b>$195,000<\/b><span style=\"font-weight: 400;\"> 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 <\/span><b>22%<\/b><span style=\"font-weight: 400;\"> ($55,000 \u00f7 $250,000 = 0.22).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Suppose you also took out a<\/span><b> $40,000 <\/b><span style=\"font-weight: 400;\">home equity loan in addition to your mortgage. The total indebtedness on the property is <\/span><b>$235,000<\/b><span style=\"font-weight: 400;\"> instead of<\/span><b> $195,000<\/b><span style=\"font-weight: 400;\">. That changes your total equity to just <\/span><b>$15,000<\/b><span style=\"font-weight: 400;\">, dropping your home equity percentage to <\/span><b>6%<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2><b>Start With a Baseline Calculation<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">To calculate how much equity you have in your home, subtract the amount of all loans attached to your house from its appraised value. This would include primary mortgages, home equity loans, or any unpaid balances on a home equity line of credit. For example, homeowner Caroline owes <\/span><b>$140,000<\/b><span style=\"font-weight: 400;\"> on a mortgage for her recently appraised property at <\/span><b>$400,000<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2><b>Next, Take a Look At How Banks Calculate Equity<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Mortgage, refinancing, and home equity lenders may utilize different methods to determine how much they&#8217;re willing to lend you and whether or not they&#8217;ll even offer you a loan. The <\/span><a href=\"https:\/\/www.anz.com.au\/personal\/home-loans\/tips-and-guides\/what-is-loan-to-value-ratio\/#:~:text=Loan%20to%20Value%20Ratio%20(LVR)%20is%20calculated%20by%20dividing%20the,pay%20for%20Lenders%20Mortgage%20Insurance.\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">loan-to-value (LTV) ratio<\/span><\/a><span style=\"font-weight: 400;\"> is one of the metrics they look at. If you have a mortgage, your LTV ratio is determined by your outstanding loan balance. If you don&#8217;t have a mortgage, the LTV ratio is calculated based on the amount of money borrowed against the value of your property. The LTV ratio is essential when determining whether or not you qualify for a mortgage refinance.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Private mortgage insurance might be required if your LTV ratio is too large. A professional appraisal is needed to correctly calculate your LTV ratio. That&#8217;s why your lender frequently wants an on-site appraisal during the loan application process. To determine your LTV ratio, divide your present debt (found on your monthly statement or online account) by the assessed value of your home (you can find this number on the official records). Convert this figure to a percentage by multiplying it by 100. Caroline&#8217;s loan-to-value ratio is <\/span><b>35%<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2><b>Possible Effects on Insurance<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Pay close attention to your LTV ratio if you have <\/span><a href=\"https:\/\/www.investopedia.com\/mortgage\/mortgage-guide\/mortgage-insurance\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">private mortgage insurance (PMI)<\/span><\/a><span style=\"font-weight: 400;\">. If a home\u2019s LTV ratio falls below <\/span><b>78%<\/b><span style=\"font-weight: 400;\">, federal law requires lenders to cancel the PMI. This is typically done when the loan balance reaches that percentage, but if extra payments cause the LTV ratio to drop below <\/span><b>80%<\/b><span style=\"font-weight: 400;\">, policyholders can request the cancellation of their PMI.<\/span><\/p>\n<h2><b>What About Home Equity Loans?<\/b><\/h2>\n<p><img decoding=\"async\" loading=\"lazy\" class=\"alignnone wp-image-17061 size-full\" src=\"https:\/\/westcapitallending.com\/wp-content\/uploads\/2022\/11\/Image-01.png\" alt=\"What About Home Equity Loans?\" width=\"760\" height=\"560\" srcset=\"https:\/\/westcapitallending.com\/blog\/wp-content\/uploads\/2022\/11\/Image-01.png 760w, https:\/\/westcapitallending.com\/blog\/wp-content\/uploads\/2022\/11\/Image-01-300x221.png 300w\" sizes=\"(max-width: 760px) 100vw, 760px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Another critical calculation to make is your <\/span><a href=\"https:\/\/www.investopedia.com\/ask\/answers\/031815\/what-combined-loan-value-ratio.asp\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">combined loan-to-value (CLTV) ratio<\/span><\/a><span style=\"font-weight: 400;\">, which compares the value of your house with the total of all the loans secured by it, including the loan or line of credit you&#8217;re looking for. If Caroline wants to acquire a <\/span><b>$75,000<\/b><span style=\"font-weight: 400;\"> home equity line of credit, she will calculate her CLTV ratio. She will likely be prepared if most lenders demand a CLTV ratio below <\/span><b>85%<\/b><span style=\"font-weight: 400;\"> to qualify for a home equity line of credit.<\/span><\/p>\n<h2><b>Ways to Potentially Increase Your Equity<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">One way to reduce your loan-to-value ratio is by paying extra on your mortgage principal each month. This will help reduce the balance of your loan quickly. Check if there are any penalties for prepaying first, though some loans don&#8217;t have this problem.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An excellent approach for protecting your home\u2019s value is to keep it clean and maintained. A messy, unkempt home is a waste of money. It looks unprofessional and can also make you liable for costly cleanup costs, especially if you have water leaks or have had floods on your property. Also, be sure to regularly check for mold. Remember that not all mold is the same; some types are more hazardous than others.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you believe your house&#8217;s value has slipped below the purchase price, try removing unnecessary items to increase its appeal before selling it. Do any necessary home improvements.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, be sure to contact an appraiser or real estate professional before making any improvements if you hope will raise the sale price of your house. Remember that economic conditions \u2014 as well as the regular dips in the real estate market \u2014 might impact your house&#8217;s value no matter what you do. If home prices rise, your LTV ratio could go down; however, falling home prices may negate any improvements made to them.<\/span><\/p>\n<p><b>Read More: <\/b><a href=\"https:\/\/westcapitallending.com\/is-2022-a-good-time-to-buy-a-home\/\" target=\"_blank\" rel=\"noopener\"><b>Is 2022 A Good Time To Buy A Home?<\/b><\/a><\/p>\n<h2><b>Transaction Costs<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Because real estate is one of the most illiquid assets, there is generally an additional cost associated with using your home equity. The overall closing costs are usually between <\/span><b>2% and 5%<\/b><span style=\"font-weight: 400;\"> in the United States. Buyers frequently cover a large portion of these fees but keep in mind that they might use them as a pretext to negotiate a lower sale price. If you take out a home equity loan, factors such as an origination fee and higher interest rates will reduce the amount of home equity available.<\/span><\/p>\n<h2><b>The Loan-To-Value Ratio<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The loan-to-value ratio (LTV) is another way to express equity in your home. You calculate the remaining loan balance by the current market value. In the second example described above, your LTV would be <\/span><b>78%<\/b><span style=\"font-weight: 400;\">. Including your <\/span><b>$40,000<\/b><span style=\"font-weight: 400;\"> home equity loan would make the total <\/span><b>94%<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Lenders dislike high LTVs since it indicates that you may be unable to repay your loans and might tighten their lending standards during economic turmoil. That was the case with the <\/span><b>2020 <\/b><span style=\"font-weight: 400;\">recession. Banks increased credit score requirements for HELOCs, lowering dollar amounts and the percentage of home equity they were willing to lend.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">LTV and home equity values are vulnerable to fluctuations in the market price of a house. Hundreds of millions of dollars in purported home equity were destroyed during the subprime mortgage crisis of <\/span><b>2007\u20132008<\/b><span style=\"font-weight: 400;\">, and the long-term effect of <\/span><b>2020<\/b><span style=\"font-weight: 400;\"> on homeownership is still unknown.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Indeed, worldwide house prices rose through<\/span><b> 2021<\/b><span style=\"font-weight: 400;\"> as a result of the stay-at-home policy and individuals searching for bigger homes to accommodate their career, education, and family life. In addition, the increasing number of companies offering work-from-home policies incentivized many families to move from cities to suburbs. Overall, we are at a historic moment regarding the pandemic and its impact on homes. It\u2019s yet unclear what the future holds.<\/span><\/p>\n<p><b>Read More: <\/b><a href=\"https:\/\/westcapitallending.com\/what-type-of-mortgage-program-is-best-for-you\/\" target=\"_blank\" rel=\"noopener\"><b>What Type Of Mortgage Program Is Best For You?<\/b><\/a><\/p>\n<h2><b>How Loan-To-Value Ratio May Affect Your Loans<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The loan-to-value (LTV) ratio is one way that lenders may choose to finance or deny a loan. This equation compares the amount of money you&#8217;re asking for in a loan to the home&#8217;s value. If you already have a mortgage, your LTV ratio will be based on how much you still owe. The LTV ratio can affect whether private mortgage insurance (PMI) is required and if refinancing might be an option.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To calculate your LTV ratio, divide your current mortgage amount by the appraised value of your home. To convert it to a percentage, multiply that number by<\/span><b> 100<\/b><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2><b>How To Cancel Private Mortgage Insurance<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">If you purchased your home with less than a <\/span><b>20% <\/b><span style=\"font-weight: 400;\">down payment, your lender probably required you to get PMI. However, it\u2019s only required if your house LTV ratio is above a certain point. The Homeowners Protection Act requires lenders to automatically cancel PMI when a home\u2019s LTV falls below <\/span><b>78% <\/b><span style=\"font-weight: 400;\">\u2014 as long as other requirements are met.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Your loan is automatically canceled when the balance reaches 78% of your home\u2019s appraised value. If, however, you have made extra payments and your LTV drops below <\/span><b>80<\/b><span style=\"font-weight: 400;\">% before that time, you can request that your lender cancel PMI.<\/span><\/p>\n<h2><b>How to Account for a Home Equity Line of Credit<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Another factor to consider when taking out a home equity loan or line of credit is your combined loan-to-value ratio (CLTV). This compares the value of your home to the amount of all loans secured by it, including the one you&#8217;re requesting.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To qualify for a home equity loan or line of credit, your total CLTV must be less than<\/span><b> 85% <\/b><span style=\"font-weight: 400;\">(though this number may be higher or vary from lender to lender). On the other hand, your property&#8217;s value may swing up and down over time, so if the value drops, you might not qualify for a home equity loan or line of credit, or you could end up owing more than the current market value of your house.<\/span><\/p>\n<h2><b>The Bottom Line<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">If you have enough equity in your house and can afford to repay the loan, using a home equity loan to pay for a significant home renovation or to consolidate debt may be a good idea. Because they rely on your house as collateral, home equity loans generally have lower rates than other choices. To do so, first, see if you qualify and get an estimate of your interest rates.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Do you have any questions about home equity?\u00a0 Leave a comment below or <\/span><a href=\"https:\/\/westcapitallending.com\/contact-us\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">contact us<\/span><\/a> <span style=\"font-weight: 400;\">for a free consultation<\/span><span style=\"font-weight: 400;\">.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many people are still confused about home equity, even though it&#8217;s a widely-discussed topic nowadays. As a homeowner, you need to understand how home equity works \u2014 especially if you&#8217;re looking into refinancing your mortgage or borrowing money from your residence. Home equity is the difference between the appraised value of your house and the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":17060,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[52],"tags":[],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/posts\/17059"}],"collection":[{"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/comments?post=17059"}],"version-history":[{"count":1,"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/posts\/17059\/revisions"}],"predecessor-version":[{"id":17062,"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/posts\/17059\/revisions\/17062"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/media\/17060"}],"wp:attachment":[{"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/media?parent=17059"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/categories?post=17059"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/westcapitallending.com\/blog\/wp-json\/wp\/v2\/tags?post=17059"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}