Calculating your home equity is very easy. First take the value of your home and then subtract how much you owe on your mortgage. The difference is the equity you have in your home, or how much of it you own.
Finding out the value of your home will be the most difficult part. To get an authoritative number, a home appraisal will be required, which could cost several hundred dollars. You could also use the value from your annual county tax assessment, or you could use one of the home value estimators available online. Usually the tax assessment will undervalue your home, while the online assessment is just an average of recent sales in your area.
In many cases home equity will be expressed as a percentage, to calculate your percentage simply take the difference from above and divide it by the value of your home. The resulting number is the percentage of your home that you own, which is a figure often used in many different financial calculations.
Building equity is the real goal of any homeowners with a mortgage. Over time you are making payments that gradually grow your equity in your home. At the end of a mortgage when you have fully repaid the loan and interest, you have 100% equity in your home and own it free and clear.
Your home equity is often used when calculating home equity loans, lines of credit or other financial products that will use your home as collateral. Lenders will take the amount of equity you have, then modify if based on your credit score to determine your maximum borrowing limits. The higher your equity, the more a lender will be willing to lend or extend to you.
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