How to Determine the Potential
Equity of Your New Home
home equity articles and tips
Home equity is roughly defined as your asset in your home. Your home is often one of the largest assets that you have. However, if it is greatly encumbered by mortgages or liens, it is not truly worth that much. Because your home's equity can greatly impact you and your finances later in life, it is important to consider how much equity you currently have if you have just purchased a home and how you can raise your home's equity to better your finances.
Consider Your Home's Current Market Value
First, you must know how much your home currently worth. This is usually considered to be the amount assessed by your county's tax assessor. You may be surprised at how high or low this number actually is. Also, be aware that this number could be different from the current market value, which could be higher or lower based on the interest in the housing market in your area. You should rely mainly on this current market value amount found with the help of a realtor.
Subtract Your Current Mortgage Amount
However, if you owe something on your home, your equity will be less than your home's current market value is. When you have a mortgage or a loan against your home, a bank or another financial institution actually owns part of your home. Subtract this number from the number you just figured for the current market value.
Do Not Rely on Your Purchase Price
It is exciting to buy property, especially if you know that you are getting a great price for it. However, do not assume that your purchase price is the same as the amount of equity that you have. Your purchase price may have been artificially driven up because of demand in the area for that certain type of home, or it may have been lower because of specials, assessments or other downsides associated with the home.
Ask Yourself if You Have Increased Your Equity
Even if you have recently moved into your new home, your equity can substantially improve if you make changes to your home as many people do within a few months of taking ownership. Improving curb appeal, doing even small remodels of bathrooms or the kitchen and upgrading flooring, windows, doors or other features can dramatically improve your home's market value as well as your home equity even though your mortgage has not changed.
If you are unhappy with the amount of equity that you currently have in your home, do not be discouraged, but instead focus on what you can do to improve this number. Keep paying down your mortgage, and you will gradually see your equity increase as long as the housing market in your area stays firm. In addition, you can make changes and improvements to your home to increase equity, which will improve your assets and give you a solid financial foundation.
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