Before you can take out a home equity line of credit (HELOC), you must first determine the amount of available equity in your home. Home equity is the difference between the current appraised value of your home and your existing mortgage balance. The following post will help you to accurately calculate your home equity so that you can better understand your HELOC options.
Determine what your home is worth
The first step in calculating your home equity is to determine the current appraisal value of your home. Many homeowners use the assessed value in calculating their equity, but the assessed value may not accurately reflect current market conditions. That is why the market value is a better yardstick. The market value is the amount of money that your home could sell for under current market conditions. For the most accurate estimate, particularly in rural areas, consider a professional appraisal. The appraiser will be familiar with both local and national market conditions, as well as the specifics of your home, including its location, property type and level of required maintenance. When applying for a Figure Home Equity Line, Figure will use an AVM to assess the value of your home.
Is it possible to have negative home equity?
If you make your monthly mortgage payments on time, then your home equity can be expected to increase over time. However, in rare cases, your home equity could decrease and even become negative. Fluctuating market conditions can affect the equity in your home, in some cases leading to negative home equity. Let's say that your home increases in value from $600K to $700K. If you have a $400K mortgage, your equity rises to $300K. Now let's say that the value of your home drops from $600K to $350K. If you have the same $400K mortgage, your equity now becomes a negative $50K.
Tips to increase your home equity
If you need to increase your home equity to qualify for a HELOC, you might want to consider lowering your LTV ratio by paying down your loan's principal more quickly. You can do this by paying more than your required minimum payment each month. The more you chip away at your loan balance and the more that your home's value increases, the higher your home equity will be.
Choose the right home equity line
Did you know that you can consolidate your debts through a HELOC? Doing so can be a strategic option that has long-lasting positive results.
You could be approved for a Figure Home Equity Line in minutes and initiate funding as few as five days1navigates to numbered disclaimer. All you have to do is complete the application process online. You can make additional draws once you have paid back a portion of the principal. To discover how you can calculate your home equity and take full advantage of that equity through a HELOC, start your Figure application today.
