How to Calculate Home Equity Loan

Many seek home equity loans to finance home improvements or to consolidate debt. Here is an easy way to estimate how much equity you have available to you.

Difficulty: Moderate

Instructions

Things You'll Need:

• Calculator

How to Calculate Home Equity Loan

1. The first figure you need is the current value of your home. To estimate the value, look at sales prices for homes in your neighborhood or within a couple miles of yours. The more similar these homes are to yours, such as in same square feet, the better the estimate. Write this number down.

2. Take the current estimated value of your home and multiply it by 85 percent. This is the general loan-to-value that mortgage lenders use to calculate the equity in your home. Once you have the answer, write the number down.

3. Take the answer from Step 2 and subtract any existing mortgage balance you have on your home. The answer is the amount of equity you have available to access with a home equity line. For example, let's say your home is worth approximately $100,000 and you have an existing first mortgage of $40,000. Eighty-five percent of $100,000 is $85,000, minus the $40,000 you owe means you have about $45,000 available in equity.

Tips & Warnings

• Equity amounts may vary by lender and by the amount you can qualify to borrow. You'll need to talk with the mortgage lender to get specific amounts. This is just to estimate how much of an equity loan you can establish.