Home Equity: You Actually Have More Than What You Think

Gabe Carrillo
Published on October 24, 2015

Home Equity: You Actually Have More Than What You Think

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In the last quarter of 2015, more than 759,000 properties had regained equity. What does this indicate? Basically, almost 91% of all mortgaged properties managed to land the positive equity position a lot of homeowners are aiming for.

To support that, according to the president and CEO of CoreLogic, Anand Nallathambi, for much of the country, the negative equity epidemic is improving and changing for the better. This was made possible because of the continuous rise in home prices for the past 3 years– it serves as an indication that the money flows have increased, while the housing stock ratio declined.

No doubt, a lot of homeowners would agree that this is good news. However, are they even aware that because of this, their equity position also changed?a

Based on a recent study conducted, Fannie Mae suggests that a lot of homeowners aren’t even aware that their equity position isn’t the same anymore–  With that, most of them fail to take advantage of the situation.

For instance, the study showed that 23% of Americans still have the misconception that their homes still have a negative position. The truth is, only 9% of these homes are in that standing.

This only implies that more than 32% of Americans with a mortgage fail to realize the opportunity they can enjoy from this kind of situation. Due to the sizable equity position, the majority of homeowners will have the privilege of moving into a new housing situation with ease– something that will definitely meet their current needs.

This issue was tackled on their most recent report.

Wherein, homeowners who have the habit of underestimating their homes’ value doesn’t only underestimate the home equity, but also has the tendency of underestimating the following:

1) The notable down payment that could be settled with the use of home equity;
2) The possibilities of qualifying for the needed mortgages;
3) The opportunities for selling the current homes to buy a new one.

Here’s How to Evaluate the Equity of a Home

For those who are considering taking out a home equity line of credit, the amount of equity in a home plays a very important role. The home equity is the difference between the current mortgage balances and the appraised value of the home.

Meaning, the more equity a homeowner has, the more refinancing options may be available to the home owner.

Thus, the equity can help the lender determine the loan-to-value ratio– one of the factors the lender must consider when deciding whether the application should be approved or not. Likewise, it will also help the lender determine whether they have to pay for the private mortgage insurance or not. Eliminating this fee can mean $200-$300 less on your payments. Check with your lender to find out what your situation is.

Calculating the Loan-to-Value Radio

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

Current Loan Balance/Current Appraised Value

Example: You have a loan balance of $242,000. Your home currently appraises for $340,000. So, the loan-to-value would appear like this:

242,000/340,000= 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 loan, as well as having the idea on how this can impact your current situation can help you come up with choices on how to reach your financial goals with ease– whether you should borrow from an equity line of credit, refinance your home, or simply continue paying down the payment.

The Appraisal

A professional appraisal is an integral part of determining the loan-to-value ratio. In case that an on-site appraisal is needed,such as is the case when you are looking to refinance in order to get cash out or to lower your current payment, then the lender must look for a certified appraiser, and this will be the one to calculate the true value. However, your Realtor( AKA Gabe the House Guy) in many cases can help you get a ballpark figure of what your homes value may be. This is based off of recent comparable home sales in your neighborhood. I’ll generate a report FREE of charge that will come in very handy if you are considering making a move or the refinancing option. This is why Realtors , such as myself are often advertising ” What is your Home Worth?” it helps give you a ballpark valuation of your home so you know where you stand.

Homeowner Tip

One of the best ways to improve the appraisal is to make smart improvements in your home. Thus, consulting an appraiser is highly recommended. Likewise, keep in mind that the economic conditions can also negatively affect one’s home value no matter how much improvement is being made.

Final Words

It’s important to familiarize yourself about the true equity of your home, and keep updated on the possible opportunities that go along with this. In such a case that you’re uncertain about the status of your home, contact me and I can help you figure out and crunch the numbers. Who knows, you may be surprised after finding out the true value.

 

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Home Equity: You Actually Have More Than What You Think
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