How To Calculate Your Home Equity (2024)

Home equity is the difference between the appraised value of your home and the amount you still owe on your mortgage. The greater your home equity, the easier it is to qualify for other financing like home equity loans and home equity lines of credit. Luckily, calculating home equity is straightforward, and there are steps you can take to increase your equity.

Calculate Your Home Equity in 3 Steps

Understanding your home equity can help you make better financial decisions and access cash for home improvements and other expenses. In general, you can calculate your home equity by subtracting the amount you owe on your mortgage from the appraised value of your home.

Follow these steps to calculate your home equity.

1. Find the Value of Your Home

The first step in calculating your home equity is determining the appraised value of your home. The most accurate way to do this is to hire a professional appraiser or request a home appraisal from your lender. Typically, home appraisals cost between $300 and $400 for a single-family home—but this depends on the property’s size, condition and value.

You can also get a general idea of your home’s worth by checking recent sales of similar homes in your area or using an online home value estimator tool like Zillow. But keep in mind that the accuracy of these estimates depends on available local data.

Related: How Home Appraisals Work

2. Determine Your Current Loan Balance

Next, find out how much you still owe on your mortgage. You can find this information on your most recent mortgage statement. If your lender has this information available online, log in to your mortgage dashboard and request your mortgage payoff amount. Alternatively, contact your lender directly to find out how much you still owe on your mortgage.

3. Calculate Your Home Equity

Once you have the appraised value of your home and the outstanding balance of your mortgage, calculate your home equity by subtracting the mortgage balance from the home value.

For example, if your home is valued at $200,000 and you still owe $100,000 on your mortgage, you have $100,000 in home equity.

Ways to Tap Your Home Equity

There are two main ways to tap your home equity: a home equity loan or a home equity line of credit (HELOC). Both products allow you to borrow against your home equity, but there are some critical differences between the two.

Using a HELOC

A HELOC is a revolving line of credit that allows you to borrow against your home equity up to a specific limit. You can access the money on an as-needed basis, and interest only accrues on the amount you borrow. Because HELOCs are revolving lines of credit, you can continue to access the borrowing limit as you pay down your balance.

A HELOC may be a better option if you need to borrow money over time or don’t know how much you’ll need. This makes HELOCs most helpful for home improvement projects paid for over time or other ongoing cash flow needs.

Using a Home Equity Loan

On the other hand, a home equity loan is a lump sum loan with a fixed interest rate and fixed monthly payments. You borrow a set amount of money and pay it back over the life of the loan. Interest accrues on the entire loan amount.

For these reasons, a home equity loan may be a good option if you need a large amount of money all at once and you want the security of fixed monthly payments.

How Much Can I Get With a Home Equity Loan or HELOC?

The amount you can borrow on a home equity loan or HELOC will depend on the value of your home, your loan-to-value ratio (LTV) and your credit score. In general, though, you’ll be able to borrow up to 85% of your home’s value minus the balance of your mortgage.

EXAMPLE

If your home is valued at $200,000 and you owe $100,000 on your mortgage, you may be able to borrow around $85,000 (even though you have $100,000 in equity). However, depending on your LTV and credit score, the actual amount could even be less. If you have a high LTV or a low credit score, you may only be able to borrow a smaller percentage of your home’s value.

If you have a poor credit score, you may only be able to borrow 50% of your home’s value, even though most lenders will allow up to 85%. Or, if you have a very high LTV, you may only be able to borrow 70% or 75%.

Talk to a lender about your situation to determine how much you’ll be able to borrow.

Related: How Much HELOC Money Can I Get?

How To Increase Your Home Equity

Increasing your home equity can bring peace of mind and help you qualify for a larger home equity loan or HELOC. Here are a few things you can do if you want to increase equity in your home:

• Make extra payments on your mortgage each month. Making additional mortgage payments will help you pay your mortgage off faster and increase your equity more quickly. Just be sure to specify to your servicer that you want the extra payments to go toward the loan principal rather than interest.
• Refinance your mortgage into a shorter-term loan. Refinancing a mortgage can help you save on interest payments, so more of your money goes to paying down the loan. This strategy can also shorten the repayment term of the mortgage without substantially increasing your monthly payment.
• Make a lump sum payment toward your principal balance. If you have the cash available, pay down a large portion of your principal at once. Depending on the lender, you also may be able to recast your mortgage by keeping your original payoff date and lowering your monthly payments.
• Maintain your home. Keeping your home in good condition can help preserve or even increase your home value over time, thereby increasing your equity. Also, consider making improvements that will increase the home’s market value—such as remodeling the kitchen or adding a pool.