The dream of homeownership is about more than just a stable place to live, exempt from landlords’ whims and decisions. For many, homeownership is a piece of the wealth-building picture, essential to a future retirement or financial independence. The idea is pretty basic: You purchase a home and pay it down while hoping the home’s value increases over time. Generally speaking, this is what happens over time. As you go, you build what’s called “equity.”
What is Equity
Definition of Equity is “the market value of a homeowner’s unencumbered interest in their real property—that is, the sum of the home’s fair market value and the outstanding balance of all liens on the property.” If you were to sell your home and pay off the mortgage’s balance (and any other debts, such as home equity credit lines or liens), the cash you would have leftover is your equity. Your “equity position” changes over time due to a variety of factors.
As you’ve probably noted, your home equity position’s most significant variable is the home’s actual market value. A variety of factors can influence your home’s value, including the market demand for homes in your area, local amenities, schools, your home’s particular features, upgrades you’ve made, condition issues, plus quite a bit more. So how can you tell your equity position?
First, you need to know what you owe on your home. Finding the amount owed is as simple as checking your mortgage statement to see your principal balance. This number can differ slightly from your actual payoff amount due to closing dates, interest, and other issues determined during the sale. For this calculation, your principal balance is the number you need to know. If you have any other debt on the home, you need to add the value of this debt to the principal balance (this might include credit lines, liens, or second mortgages.)
Next, you need to know the value of your home. Zillow and Trulia sites use “automated valuation models” to give you an approximate home value. These models are generally not very accurate when it comes to your home’s value as they exclude many crucial factors. Often, they come in quite a bit higher. They can, however, give you an idea of general changing trends in your market over time.
Hiring an appraiser is one way to determine your home’s value from a more bank-like perspective. While an actual sale may be above the appraisal, this thorough, conservative option is an excellent way to go. The downside? You may have to pay up to $500 for the assessment.
Knowing the correct value of your home is crucial when it comes to selling your home. Having a home priced correctly is one of the number one reasons homes sell fast. On the flip side, a home priced too high can cause the house to sit on the market too long. The right price is vital. Get in touch today if you want to learn more: (928) 916-1921.