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Understanding Your Home's Equity

By taking the current market value of your central Arizona home that you receive after an appraisal and subtract it from the amount you currently owe on your mortgage, you will find your home’s equity.

Your home equity is how much of the property that you actually own. This simple equation will provide the answer to the question of how much equity you have in your home. Knowing the amount of equity you have in your home plays a vital role in major decisions like taking out a loan for repairs, improvements or to purchase a new home.

How much equity do I have in my house?

To determine the amount of equity you have in your home, you need to have it properly appraised to get the true market value. After you have the home appraised, you can determine how much equity you have by subtracting that value from your current mortgage balance. Determining a home’s equity uses this simple formula: The appraised value of the home – the current mortgage balance = equity. For example, if your home appraises at $300,000 and your mortgage balance is $220,000, the formula for determining your equity would look like this: $300,000 – $220,000 = $80,000.

In this scenario, there is $80,000 of available equity in your home.

What if my home value increases?

If you need to borrow money for a renovation or addition to your home, an increase in your home's value establishes more equity to do the new project. It is important to realize that not all value increases are beneficial. If you attempt to refinance and your home appraisal comes in high, it impact your interest rate due to lenders using the appraisal to determine the loan-to-value (LTV) ratio.

Can I have negative equity?

Negative equity can happen if the value of your home is less than the total balance of your mortgage. Lenders reduce risks by ensuring that you aren’t borrowing more than 80% of your home’s total current value. If the housing market were to drop and your home’s value had a dramatic decrease, that might result in negative equity in your home. If you want to sell your home, you’d have to pay the difference between what you owe and its selling price.

How can I improve my home equity?

The housing market is known to have it's ups and downs. Due to this you can often find a raise in your home equity or at times a decrease. If your home value remains stable, there are many ways to increase its equity. First, pay down your mortgage’s principal, which will lower your loan-to-value ratio. Next, consider paying more than the required minimum mortgage payment to reduce your LTV ratio. Here are some additional techniques to improve your home equity:

Tips for improving home equity

  • Keep your home well maintained

  • Invest in wise home improvements and upgrades (research the ones that will give you the most value)

  • Enhance your home’s curb appeal

If you are looking to buy or sell a new home here in Central Arizona, give local real estate expert, Juliet Orris, help you during this life changing transaction.

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