Home Equity: You Actually Have More Than You Think

Kimberly Bean
Published on October 24, 2015

Home Equity: You Actually Have More Than You Think

In the last quarter of 2015, more than 759,000 properties had regained equity. What does this mean?

Basically, it means that nearly 91 percent of all mortgages properties managed to land in the positive equity position most homeowners aim for. According to Anand Nallathambi, president and CEO of CoreLogic, the negative equity epidemic is improving and changing for the better. This has happened because of the continuous rise in home process for the last three years. It is an indication that money flows have increased while the housing stock’s ratio declined.

Most Southern Maryland homeowners would no doubt agree that this is good news. But, do they know that because of this, their equity position has also changed?

Based on a recent study, Fannie Mae suggests that a lot of homeowners don’t even know that their equity position is the same, even if it underwent a dramatic change. Because of that, most of them fail to take advantage of the situation.

For example, the study showed that 23 percent of Americans still think that their homes have a negative position. The truth, however, is that only 9 percent of these homes are in that standing.

This implies that more than 32 percent of Americans with a mortgage do not realize the opportunity they can enjoy from this kind of situation. Due to the sizable equity position, most homeowners will have the privilege of moving into a new house with ease, something that can definitely meet their current needs.

This issue was tackled on their most recent report.

Homeowners who have a habit of underestimating their home’s value not only underestimate the home’s equity. They also have the tendency to underestimate these things:

  • The notable down payment that could be settled with the use of home equity
  • The possibility of qualifying for the mortgage they need
  • The opportunities for selling their current home to buy a new one

How to Evaluate the Equity of a Home

If you’re taking out a home equity line of credit, the amount of equity in a home plays a very important role. Home equity is the difference between the current mortgage balance and the appraised value of the home. This means the more equity a homeowner has, the more refinancing options may be available to them.

Equity can help the lender determine the loan-to-value ratio, one of the factors the lender must consider when deciding whether to approve the loan application. It can also help the lender determine whether the buyer has to pay private mortgage insurance (PMI).

Calculating the Loan-to-Value Radio

The loan-to-value ratio is another way to determine the amount owed on the current mortgage.

Current Loan Balance/Current Appraised Value

Example: Your loan balance is $150,000, and your home appraises for $210,000. So, the loan-to-value would appear like this:

150,000/210,000= 0.71

Convert 0.71 to a percentage, and this will give you a loan-to-value ratio of 71%

Knowing how to calculate the loan-to-value ratio of the home – plus knowing how this can impact your current situation – can help you decide how to reach your financial goals with ease. These decisions include whether you should borrow from an equity, refinance, or simply continue paying down the mortgage.

The Appraisal

Getting a professional appraisal is an important part of determining the loan-to-value ratio. If an on-site appraisal is needed, the lender must look for a certified appraiser; this person will calculate the true value.

Homeowner Tip

You can improve your appraisal by making smart improvements in your home. It’s highly recommended that you consult an appraiser. And, remember that economic conditions can negatively impact your home’s value no matter how much improvement is being made.

Final Words

Homeowners should be familiar with the true equity of their home and stay updated on the possibilities that go along with it. If you’re not sure about the savings needed for your home, contacting a Southern Maryland real estate professional can help you figure out the numbers. You may be surprised!

Hughesville MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309

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