You probably know what you paid for your home. You probably also know approximately how much you still owe on your mortgage.
But do you know how much equity you have?
For many homeowners, the answer is no.
As you make mortgage payments and your home's value changes over time, you may be building equity without really thinking about it. That equity isn't just a number on paper. In some situations, it may be a financial resource you can use without selling your home.
First, What Is Home Equity?
Home equity is generally the difference between what your home is worth and what you still owe on it.
For example, imagine your home is worth $250,000 and you owe $150,000 on your mortgage.
That would give you approximately $100,000 in home equity.
That doesn't necessarily mean you can borrow the entire $100,000. How much you may be able to borrow depends on factors such as your home's value, existing mortgage balance, creditworthiness, income and the lender's requirements.
But you may have access to more equity than you realize.
How Do You Build Home Equity?
There are two primary ways homeowners can build equity.
First, every time you make a mortgage payment that reduces your principal balance, you're increasing your ownership stake in the home.
Second, if your home's market value increases while your mortgage balance decreases, the difference between the two can grow even more.
If you've owned your home for several years and haven't looked at its current value recently, your equity position today could be very different from when you purchased the property.
What Can You Do With Home Equity?
One way homeowners may access their equity is through a Home Equity Line of Credit, or HELOC.
A HELOC allows qualified homeowners to borrow against available equity in their homes. Rather than receiving money simply because you have equity, you are establishing a line of credit that you can access when you need it, subject to the terms of the loan.
Homeowners may consider a HELOC for expenses such as:
- Home improvements or repairs
- Replacing a roof, furnace or other major home system
- Larger planned purchases
- Education expenses
- Consolidating higher-interest debt
- Unexpected major expenses
Because your home secures the loan, it's important to consider carefully how and why you use the funds.
You Don't Have to Know How Much Equity You Have Before Asking
This is where some homeowners get stuck.
You don't need to calculate everything yourself before having a conversation with a lender.
If you've been in your home for a while, have been making mortgage payments and think your home may have increased in value, it may simply be worth asking: How much equity do I have, and could I use some of it?
A lender can explain how home value and your existing mortgage balance factor into the process and what options may be available based on your individual situation.
Your Home Is More Than a Place to Live
For many people, a home is one of their largest assets. As you pay down your mortgage and build equity, that asset may provide financial flexibility when you need it.
You don't have to be planning a major renovation or have an immediate expense to learn where you stand.
Knowing approximately how much equity you've built can help you better understand your overall financial picture — and the options that may be available in the future.
Think you may have equity in your home? Talk with Community Focus Federal Credit Union about your home equity options.