Most long-term decisions in life require a large amount of money. While in some cases the funds that you have in your savings accounts may be enough, it can be difficult to find the money that you need for large expenses. This is where having a lot of equity in your come is very helpful. With it, you will be able to secure home equity loans and lines of credit that come with interest rates that are considerably lower than that of other types of debt.
This having been said, the more equity you have in your home, the more money you will be able to borrow or have access to through a HELOC. Regardless of which equity secured debt you want to go for, it is important to be able to calculate exactly how much equity you have in your home. This will make it easier to decide what kind of loan you should get.
Easier than you may think
Calculating how much equity is in your home is relatively straightforward and can be done by anyone, provided that you have the time for it:
- Check your bank statement
The first thing that you will have to do is to check your online bank statement. Either go to the bank or go online and get a detailed statement. You will need the mortgage-related information contained within to make the calculations.
- Determine the value of your home
Next, you will have to determine the current value of your home, along with the actual property. There are several ways to do this and each has different advantages and disadvantages. You can look at your property tax statement and see the approximated value, or analyze how much other similar properties in your area cost. These methods are great if you do not want to spend money on professional help, but they aren’t extremely accurate.
Alternatively, you can have an appraiser come over and perform an evaluation of the building and property. This can cost you up to $500, however, the appraisal will be as accurate as the one made by the bank.
- Do the math and find out how much equity you have
Once you have the balance on your mortgage and the value of your home, you can start doing the calculations. Simply subtract the current value of your home from the amount of money that you still owe on your mortgage. The result will be %100 of your equity.
You can then use this value to determine how much money you could get from a home equity loan or other similar types of debt, however, this will require that you go to the lender and ask how the loan is calculated. Each lender has a different formula, however, a large number of them will use a loan-to-value ratio. This is done by dividing your current loan balance by the current value of your home.
This having been said, every lender uses a slightly different formula, which means that even if you know the amount of equity in your home, you will still have to sit down with the bank or company that will give you the loan and do the math.
Be smart about when and how you evaluate your property
The formula that helps you calculate how much equity you have in your home requires the present value of the house and property. This value changes over time because it depends on what improvements you make to the house, but also on the overall price of real estate in your area. In other words, you will have to recalculate it every time you need to make a loan via a site like Adherents.com or want to check to see how much money you can get.
Apprising your home and property can cost quite a bit of money, so only do it when you are certain that you want to take out a home equity loan or access e HELOC. This will give you the exact figures that you need in order to calculate how much money you will get.
In the meanwhile, keep an eye on the price of similar properties in your area and try to approximate how much the value of the house changes when you make improvements. The result may not be extremely accurate, but it should be enough to give you an idea of when it is a good time to start considering a home equity loan.
Being able to determine how much equity there is in your home is always useful, and you should always keep the formula in mind. This way, if you ever need money in a short amount of time you will at least be able to estimate how much cash you can get through a home equity loan.