With home values on the rise and mortgage rates shifting, home equity has become a powerful financial tool for many homeowners. But here’s the catch: most people don’t actually know how much equity they really have. Relying on outdated tax assessments or overlooking second liens and HELOC balances can lead to serious missteps, like missing out on borrowing opportunities or, worse, overleveraging your home. Whether you’re looking to consolidate debt or simply understand your financial position, knowing how to calculate your home equity accurately is the first step.
What is home equity?
Home equity is the difference between your home’s current market value and what you still owe on your mortgage. In simple terms, it’s the portion of your home that you truly own. Equity builds over time in two key ways:
Paying down your mortgage — Each monthly payment reduces your loan balance and increases your ownership stake.
Home value appreciation — If the market value of your home rises, so does your equity—without you having to lift a finger.
Home equity isn’t just a number on paper; it can be a valuable resource. Used wisely, your equity can open doors to financial flexibility and long-term growth.
How to calculate your home equity
Calculating your home equity is simpler than you might think, and it’s the key to understanding how much of your home’s value you actually own. The basic formula is:
Home Equity = Current Market Value of Your Home – Outstanding Mortgage Balance
For example, if your home is currently worth $450,000 and you still owe $280,000 on your mortgage:
$450,000 – $280,000 = $170,000 in home equity
This means you have $170,000 of ownership in your home.
To calculate your equity, follow these steps:
Determine your home’s current market value.
Use recent sales of similar homes in your area, get a professional appraisal, or use a reliable online estimator to get a ballpark figure.Find your outstanding mortgage balance.
Check your latest mortgage statement to see how much you still owe, including any second mortgages or home equity loans.Subtract your loan balance from your home’s value.
The result is your current home equity.
Understanding loan-to-value (LTV) and combined LTV (CLTV)
What Is LTV?
Loan-to-value (LTV) is a ratio that compares the amount you owe on your home to its current market value. Lenders use it to assess risk and determine what loan options you may qualify for.
LTV Formula:
LTV = (Total Loan Balance ÷ Home Value) × 100
For example, if your home is worth $400,000 and your mortgage balance is $260,000, your LTV is:
(260,000 ÷ 400,000) × 100 = 65% LTV
A lower LTV typically means less risk for lenders and may lead to better interest rates or loan terms.
What Is CLTV?
If you have more than one loan on your home, such as a mortgage and a home equity line of credit (HELOC), lenders use Combined Loan-to-Value (CLTV) instead. CLTV includes all outstanding home-related loans.
CLTV Formula:
CLTV = (Total of All Loans ÷ Home Value) × 100
For example, if you owe $260,000 on your first mortgage and $40,000 on a HELOC, your CLTV is:
(300,000 ÷ 400,000) × 100 = 75% CLTV
At Figure, max CLTV thresholds are:
85% for primary residences
80% for secondary or investment properties
How to Lower Your LTV or CLTV
Pay down your loan balances faster with extra payments.
Wait for your home’s value to increase—or get a new appraisal if you think it has. A higher home value can improve your ratio even if your loan balance stays the same.
Avoid taking out additional loans secured by your home. Keeping your overall home debt low relative to your property’s value can strengthen your application and potentially improve your loan terms.
Lowering your LTV can unlock better borrowing terms and more financial flexibility.
How much can you borrow with your home equity?
Lenders use your loan-to-value (LTV) ratio to determine how much of your home equity you can borrow. Most lenders allow you to borrow up to 80–85% of your home’s value, depending on your credit, income, and loan type.
To find out how much you could potentially access, they calculate your maximum allowed loan amount based on a target LTV, then subtract what you still owe on your mortgage.
Borrowable Amount = (Home Value × Max CLTV) – Current Mortgage Balance
Let’s say your home is worth $500,000, and your lender allows up to 80% LTV.
80% of $500,000 = $400,000
You still owe $270,000 on your mortgage
$400,000 – $270,000 = $130,000 available equity
In this scenario, you may be able to borrow up to $130,000 through a HELOC.
Keep in mind, factors like your credit score, income, and overall debt can also affect how much a lender is willing to offer, even if your equity qualifies.
Estimate your borrowing amount now →
How to increase your home equity
Building home equity is a smart way to strengthen your financial position over time. Whether you're planning to borrow against it or just want to boost your net worth, here are a few effective ways to grow your equity:
Make extra mortgage payments
Paying more than the minimum—either monthly or as lump sums—reduces your loan balance faster, which increases your equity.Avoid taking on new home loans
Steer clear of additional borrowing, unless necessary. More debt means lower equity.Renovate strategically
Home improvements like kitchen upgrades, bathroom remodels, or energy-efficient upgrades can boost your home’s value, especially if they appeal to buyers in your area.Stay put while your home appreciates
Over time, your home’s market value may increase due to rising property values in your neighborhood. The longer you hold onto your home, the more equity you’re likely to build.
Increasing your equity gives you more flexibility, better loan terms, and a stronger financial foundation—now and in the future.
Why knowing your home equity matters
Knowing your equity isn’t just helpful—it can be financially empowering.
Your home equity impacts key decisions, like whether you can:
Qualify for a HELOC without needing to refinance
Use your equity to consolidate debt into one lower monthly payment. Learn more about Debt Consolidation with HELOC.
Leverage your equity to fund major expenses, like home renovations or college tuition
Common mistakes when calculating home equity
While calculating home equity is straightforward, it’s easy to overlook key details that can lead to inaccurate estimates. Here are some of the most common pitfalls:
Using outdated home value estimates
Property tax assessments or old appraisals may not reflect your home’s current market value. Online tools like Zillow’s Zestimate or Redfin’s Estimate offer a quick starting point, but keep in mind they’re not always spot-on. To get a more realistic sense of your equity, check recent home sales in your area that are similar in size and condition.Not pulling the proper permits for home improvements
If you’ve made upgrades, like adding a bedroom or converting a garage, but didn’t get the required permits, those improvements may not be reflected in your home's official record. That means your property might still be listed as a 2 bed, 2 bath, even if you’ve converted it to a 3 bed, 2 bath. As a result, comparable sales used to estimate your home’s value will be based on outdated specs, lowering your appraised equity. Always ensure upgrades are permitted and recorded to avoid undervaluing your home.Forgetting about second mortgages or HELOCs
Equity isn’t just about your primary mortgage—any additional liens on your home reduce the equity available to you.Ignoring fees and closing costs
If you're planning to tap into your equity, remember that fees, closing costs, and potential appraisal charges will reduce your actual cash-out amount.Overestimating how much you can borrow
Just because you have $150,000 in equity doesn’t mean you can borrow all of it. Most lenders cap borrowing at 80–85% LTV.
FAQs about calculating home equity
Can I estimate equity without an appraisal?
Yes. Figure uses AVMs to provide instant value estimates.
Do closing costs affect my home equity?
Yes, especially if they’re rolled into a loan.
How often should I recalculate equity?
Annually or any time you apply for a refinance or other home equity loan or line.
What’s the minimum equity required for a HELOC?
Generally, you’ll need at least 15–20% equity after the loan is funded.
How does my LTV ratio influence the amount I can borrow?
Your LTV ratio tells lenders how much equity you have in your home. The lower your LTV, the more equity you have—and the more you may be eligible to borrow.
Can I have negative equity?
Yes—if your home is worth less than what you owe, you have negative equity.
Ready to explore your home’s potential?
Your home is more than just a place to live, it’s a valuable financial asset. By understanding how to calculate your equity and use it wisely, you can unlock opportunities to improve your finances, invest in your future, or simply gain peace of mind.
Figure helps homeowners tap into their equity quickly, securely, and transparently—with:
100% digital application process
No in-person appraisal for loan amounts below $400,000.
Funding in as few as 5 days (for eligible applicants)1: Navigates to numbered disclaimer
Whether you're planning a renovation, consolidating debt, or just want to know where you stand, now is the perfect time to take the next step.
Start by calculating your equity, and see what your home can do for you.
