Figuring out how much equity you have in your home is sometimes the determining factor in whether you're ready to purchase your next home.
More often than not, there's only a number of reasons you're looking to purchase your next home...
- You've outgrown your current home and need something bigger (which most likely means something that will cost more than you originally spent on your first home).
- You're relocating to a new area for work, family, or a change in lifestyle.
- You're downsizing, maybe later in life, as you prepare for retirement.
If you're looking for a larger home or even relocating to a new area (maybe a more costly area than you currently live in), knowing how much equity you have in your home is important. Your home equity is the difference between the appraised value of your home and your current mortgage balance. The more equity you have, the more options you'll have.
With equity comes security. When you have positive equity in your home, you're secure in knowing that you can sell your home for more than what you owe on it, thus having a nice chunk of change (hopefully) to put down on your next home.
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So, how much equity do you really have in your home?
While many are tempted to turn to well-known websites that offer information on property values, more often than not these sites do not provide an accurate representation of the marketplace. It may seem easy to plug in a few numbers found on your mortgage statement and subtract that from an automated valuation tool to estimate the equity in your home, but the numbers may not paint a true picture for you.
By way of example, I remember being contacted by a long-time customer of mine regarding the sale of their homes. After spending time online looking at “home values” they were more confused than confident. One of their homes was custom-built with all the bells and whistles situated on multiple acres, and the other was a tract-built home with standard features and almost a zero lot line. However, a popular online website indicated both homes were worth the same amount of money. What? How can that be? As you can imagine, they were confused and disappointed - and rightly so. After sitting with them and analyzing both properties they were shocked to know one of their homes was actually worth $400,000 - a whopping $215,000 more than the online valuation website had indicated.
Moral of the story? Spend your time and efforts wisely, by contacting a knowledgeable real estate professional who knows the market, understands how to properly analyze the value of real estate, and can provide you with a true picture of what your equity really is.
