How to Calculate Your Home Equity 

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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Home equity sheds light on how much of your home you own. This number also helps you calculate how much you can take out as a home equity line of credit. We’ll share how to calculate home equity and some ways to access these funds.

Unlock Your Home Equity

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Learn how Unlock can help you access cash using your home’s equity without taking extra debt or paying any monthly fees.
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Learn how Unlock can help you tap into your home equity without taking a loan or adding to your existing debt to fund personal projects.

What is Home Equity?

Home equity reveals how much of your home you own. Each mortgage payment is an investment that builds up your equity. As a result, home equity impacts your financing options and how soon you can stop making mortgage payments. 

How Do You Calculate Your Home Equity?

Many homeowners want to know their home equity. It can guide financial decisions and provides clarity on their current position. Follow these steps to calculate your equity.

Determine Your Home’s Value

Your home’s value, determined by an appraiser’s assessment, indicates your highest possible equity. Your home equity cannot exceed the value of your home. If it’s been a while since someone appraised your property, this tactic can increase your home’s value. A higher home value will increase your home equity.

Deduct the Amount You Owe

Many homeowners have obligations such as a mortgage on their home. Deduct these debts from your home’s value to arrive at your home equity position. Staying up to date on mortgage payments will increase your equity.

Calculate Your Loan to Value Ratio

Your loan to value ratio impacts financing options. Lenders will require you to pay private mortgage insurance if your loan to value ratio exceeds 80%. Lenders may also turn you down for a HELOC if your loan to value ratio is close to 80%.

If you want to calculate your LTV ratio, you’ll need total obligations on your home and the appraised value. If you owe $400,000 and your home is worth $500,000, your loan to value ratio is 80%. Reducing this ratio over time makes you more attractive to lenders. Not only will you increase your approval chances, but you’ll likely score a lower interest rate too.

What is Your Credit Score and Annual Income?

You don’t need to use your credit score or annual income to calculate your home equity. However, they impact your ability to get a home equity line of credit or loan.

Lenders assess credit scores and annual incomes to gauge an applicant’s financial health. A higher credit score and annual income will help you obtain higher loan amounts and lower interest rates. 

How Do I Access Home Equity?

Accessing home equity helps people pay high costs. You can keep up with the cost of living, pay for a car, or cover medical bills. Not every homeowner plans to access home equity, but doing so may become necessary in the future. We’ll share some financing options that let you tap into your home equity.

Get a Home Equity Loan

A home equity loan is a lump-sum payment from your lender. You must then make fixed monthly payments to pay back the loan. You have to approach a lender each time you want to take out additional funds. 

Your lender will review your income, credit score, and other documents before handing out a loan. Lenders will set a limit on your loan to value ratio. Some lenders don’t let you exceed an 80% loan to value ratio.

Home Equity Line of Credit (HELOC)

 A HELOC is similar to a home equity loan. However, instead of approaching the lender each time, you can take out funds whenever you need them. In that regard, a HELOC is similar to a credit card with lower interest rates.

Lenders will ask for the same financial details for HELOCs and home equity loans. A HELOC gives you more flexibility than a home equity loan. You have more access to your equity, and you’re not obligated to borrow money against your home. Not borrowing against your home means no interest payments. You can spend less than planned and save money.

Unlock Your Home Equity

215 Reviews
Learn how Unlock can help you access cash using your home’s equity without taking extra debt or paying any monthly fees.
215 Reviews
Learn how Unlock can help you tap into your home equity without taking a loan or adding to your existing debt to fund personal projects.

Cash-Out Refinance

A cash-out refinance replaces an old mortgage with a new one. The new mortgage pays off the old mortgage and becomes the new financing arrangement for your home. Refinancing is popular among homeowners and can provide many benefits:

  • You get extra cash at the moment. Increasing your mortgage leads to a windfall of funds, similar to a home equity loan.
  • A refinance reduces monthly payments. Turning a 10-year mortgage into a 15-year mortgage increases payment periods. Longer terms reduce monthly payments.
  • Capitalize on interest rate fluctuations. Some homeowners purchase their properties during periods of high-interest rates. Rates can decline after you purchase your home. Refinancing helps you pay at the current rate instead of your existing mortgage’s interest rate. A lower interest rate will make the monthly mortgage payments more affordable.

Lenders will assess financial documents to gauge your ability to manage extra debt. A cash-out refinance is the only option that lets you borrow beyond your home’s equity. Some lenders allow you to borrow enough money to reach a 125% loan to value ratio.

If your home is worth $500,000 and you currently owe $400,000, some lenders will let you borrow $225,000 for a cash-out refinance. This arrangement would push your total obligations to $625,000. Therefore, your obligations in this example are 25% higher than the home’s $500,000 appraised value.

HELOC and home equity loan lenders will turn you away in this scenario. An 80% or higher loan-to-value ratio makes them cautious about handing you a loan. Cash-out refinance lenders will also do their homework on you, but you can borrow more money with this financing option.

Home Equity Agreement (HEA)

The previous financing options help you get extra cash at a steep cost. As a result, you’ll incur additional debt and may end up with a tight budget. Excessive debt forces people to make difficult decisions about their lifestyles. A home equity agreement provides you with the cash you need without incurring debt. You can get equity now without straining your budget and adding significant stress to your life.

What is a Home Equity Agreement, and How Does It Work?

A home equity agreement lets you access equity without taking out a loan or making monthly payments. Instead, a HEA company will appraise your house to determine its value. The company will then make a cash offer for a percentage of your property.

You only pay the company when you sell the property. The company receives a percentage of the proceeds equal to its equity position. If they buy 10% of your home’s equity and you eventually sell for $800,000, the HEA company will make $80,000.

You can buy out a HEA company earlier. Homeowners can buy back their equity position before selling the home. If a company gives you money for a 10% equity position, you will have to buy back at 10% of your home’s newly appraised value. 

Unlock can provide you with a free, no-obligation cash offer. In addition, unlock will provide you with funds for a portion of your home’s equity. You can receive between $30,000 to $500,000 for some of your home’s equity. 

Unlock frees you from the bind of monthly payments and additional debt. After answering a few simple questions on their website, you will receive a free home equity cash offer.

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