If you’ve been living in your home for a while, chances are you’ve built up equity in your home. The beauty of home equity is that you can tap into it with a home equity loan or cash it out when you sell your house. Here’s a closer look at what home equity is, how to calculate it and how to increase it with some smart financial strategies.
Home equity is the difference between your current mortgage balance (plus any other debts against your home) and your home’s current market value. You can calculate your home equity if you know these numbers:
If you’re wondering about your home’s worth, a qualified real estate appraiser can give you an estimate. But ultimately, your home is worth what a buyer is willing to pay for it — it could be more or less than the appraised value.
Home equity is historically one of the best ways of accumulating wealth, and statistics back this up. The typical profit on a home in the US in 2022 is $94,000 – up 71% over pre-pandemic sales prices, according to data from CNBC. And for homes in hot property markets like Florida, Texas and Idaho — home equity and sales profits have been rising even faster.
Suppose you buy a home for $300,000. You put 20% down ($60,000) and get a mortgage for $240,000 to cover the rest. At closing, you have $60,000 worth of equity in your home.
Now, let’s say it’s five years later and you’ve paid down $23,000 of your loan’s principal and the value of your home has appreciated by $50,000. You now have $133,000 worth of equity in your home.
While home equity typically takes years to build, here are seven steps you can take to build the equity in your home faster.
To calculate your home equity, subtract what you owe on all secured debt against your home — including your mortgage and home equity loans, if any — from its current market value.
For example:
For more information on the benefits to calculating your home equity, see our guide on how to calculate home equity.
There are a few ways to use your home equity: get a home equity loan or HELOC, or do a cash-out refinance.
Some common reasons people use home equity include:
Because you’re taking on more debt with these methods, it’s advisable to only use the money in a way that makes financial sense. For example, using home equity to fund a luxury vacation is probably not a good use of your home’s value. On the other hand, using home equity to pay off high-interest student loan debt can be a smart financial move.
HELOCs and home equity loans each have their pros and cons and are used for different purposes. To learn more, see our guide on home equity loans vs. HELOCs.
Use our tool to get personalized estimated rates from top lenders based on your location and financial details. Select whether you’re looking for a Home Equity Loan, HELOC or Cash-Out Refinance.
If you selected a home equity loan or HELOC, enter your ZIP code, credit score and information about your current home to see your personalized rates.
In the Cash-Out Refinance tab, select Refinance and enter your ZIP code, credit score and other property details to see what you might qualify for.
Home equity is wealth you can tap into while you own your home and profit from when you sell your home. If now is the right time to access your home equity, compare HELOC rates and lenders or learn more about how home equity loans work.
There are special laws you need to know if you plan on getting a HELOC or home equity loan in Texas.
Use this calculator to estimate your monthly payment for a home equity loan.
Access your equity through a partnership that shares in your home’s appreciation — or not — over 10 years.
Here are questions you should prepare for when getting preapproved for a home equity loan.
Learn about how HELOCs work, how it’s paid back, fees, pros and cons, and more.
Together, these 7 HELOC lenders cater to a diverse range of borrowers.
This complex strategy may save you money in the long run but it can be risky.
It varies, but be prepared to gather documentation and verify your financial situation.
Decide whether you want to draw funds as needed or get a lump sum.
Use your equity to get a flexible credit line, if you can qualify.