How to calculate your home equity

It really pays off to understand the value of owning a home, especially when money is tight. Instead of taking out a personal loan or racking up credit card debt, you are yours Home is equal – Amount of money you have invested in your home.

Home equity loan And Home Equity Lines of Credit (HELOCs) Two ways to access your home equity to pay for something you love. And if you use them for IRS-approved home repairs and improvements, The interest you pay may be tax deductible.

one with Home equity loan, you receive a lump sum and payments begin as soon as the funds are received. one with HELOC, you get credit lines and withdraw funds as needed. You pay back the amount you borrowed and the repayment starts after the draw period ends. Which option is best for you? Depends on your needs.

Calculating your home equity is easy. Let’s break down how to do this and why knowing this number is important.

If you’re looking for a home equity loan or HELOC, check out what rates are available here.

How to calculate your home equity

You can calculate your home equity by subtracting your outstanding mortgage balance from your home’s current market value.

For example, say you bought your home for $400,000. You have since made $100,000 in payments, bringing your current balance to $300,000. During that same period, the value of your home increased by $500,000. In this scenario, your home equity would be $200,000 ($500,000 – $300,000).

Explore your home equity options here now.

Why Home Equity Matters

To qualify for a home equity loan or HELOC, most lenders require you to have at least 15% to 20% equity in your home.

To convert your home equity to a percentage, divide the amount by the current market value of your home and multiply the result by 100. In the example above, you would divide $200,000 by $500,000 to get 0.40. You then multiply 0.40 by 100 to get 40. This means you have 40% in your home.

Note that lenders will not allow you to borrow your total equity amount. usually, You can borrow 80% to 85% of your home equity. So, in the example above, you might be able to borrow $160,000 to $170,000. The actual amount you’re approved for depends on the amount of equity in your home and other factors, such as your Credit score and income.

Check out home equity loan and HELOC rates here to see how much you might qualify for.

Bottom line

Whether you choose a home equity loan or a HELOC, there are a few things you can do to increase your potential loan amount. Increase your home equity, such as making improvements that increase your home’s value and increase your mortgage payment. to find out Best Home Equity Loans or HELOC ratesDo your homework by shopping around, comparing lender offers and considering your needs and budget.