Learn How To Calculate Home Equity

Apr 4, 2024

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For most homeowners, their house is their biggest financial asset. Knowing how much equity you have in your home is crucial for everything from basic financial planning to refinancing and selling decisions. But, how do you calculate your home equity?

The formula is simple: Deduct the outstanding balance on your mortgage from your home’s current value. However, understanding how to arrive at an accurate calculation of your equity and how much equity you can borrow requires a bit more explanation.

How To Calculate Your Home Equity In 3 Steps

To calculate your home equity, you need to find two key pieces of information and then plug them into a formula.

Step 1: Determine The Value Of Your Home

The first step in your home equity calculation is to determine the value of your home. You can use online estimators, such as the Rocket Mortgage® Property Report, to get an estimated market value, but an appraisal by a professional appraiser will provide greater accuracy. An appraisal may cost somewhere between $450 – $550 for a single-family home, but the exact cost will depend largely on the home’s location and size.

If you plan on refinancing your mortgage, your lender will likely require an appraisal. The cost of the appraisal can sometimes be rolled into your new loan along with other closing costs.

Step 2: Figure Out How Much You Owe

Next, you need to find out how much you owe on your mortgage loan. You can reference your latest mortgage statement, call your mortgage company or log into your online account.

Step 3: Subtract Your Loan Balance From Home Value

The final step is to plug the values from steps one and two into the correct formula. To determine your home’s equity, take the home’s appraised value and subtract the current mortgage balance. If you’re not looking to refinance and just want a ballpark estimate of your home equity, you can subtract your loan balance from the estimated market value you find online.

An Example Of Calculating Home Equity

For example, if an appraiser determines your home is worth $400,000 and you find your mortgage balance to be $200,000, you have $200,000 in equity:

$400,000 - $200,000 = $200,000

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