How Much of My Home Equity Can I Borrow?

If you’re thinking about taking advantage of the equity you’ve built in your home, you may be wondering: how much of my home equity can I borrow? Depending on your situation, you may be able to get up to 85% of your home’s equity in cash. Your credit history, income, and your home’s market value can all impact the amount of the cash you receive. 

There are a number of methods for tapping into your home equity. Popular options include cash-out refinancing, home equity loans/HELOCs, or a Home Equity Investment (HEI) from Point. With an HEI, you can get up to $350,000 in home equity with no monthly payments. 

How To Calculate Your Home Equity

The term “home equity” is used to describe the difference between how much you owe on your mortgage compared to the current market value of your home. In other words, it represents the portion of your home that you own free and clear.

You can find your home’s appraised value by checking websites like Zillow or Redfin, or you can order an appraisal from your county’s property appraisal office. From there, you can calculate your home’s equity. If your home has a current market value of $180,000 and your mortgage balance is $160,000, you have $20,000 of equity in your home.

To qualify for a home equity product, you’ll need a minimum of 20% of your home’s equity. So, if your home has a market value of $180,000, your mortgage balance should be no more than $144,000 (80% of your home’s value), which ultimately means that you own exactly 20% equity (equaling $36,000). This represents a loan-to-value (LTV) ratio of 80%.

So, what percentage of equity can you borrow if you need to access that money? Generally, you can use only up to 85% of your available home equity. This is why home equity products make the most sense if your home’s market value has substantially increased since you purchased your home and/or if you have paid down a substantial portion of your mortgage balance. These are the two most effective ways of building equity in your home. Since that means more equity is available to you, you’ll have more financial options to help you with your financial goals.

How To Calculate Your LTV Ratio

Your LTV ratio tells you what percentage of your home belongs to you and what percentage belongs to the bank. Calculating it is simple, as you only need to know two numbers: how much money you still owe on your home (i.e., your mortgage balance) and an approximation of your home’s value (i.e., how much you could sell it for in the current market).

To calculate your LTV, simply divide your mortgage balance by the home’s current value to get the answer as a percentage. Here are some example calculations: 

  • Your home’s value is $500,000 and you owe $300,000. Dividing $300,000 by $500,000 gives you 0.6, which represents an LTV of 60%. That means you own 40% equity in your home.
  • Your home’s value is $300,000 and you owe $250,000. Dividing $250,000 by $300,000 gives you 0.83, which represents an LTV of 83%. That means you own 17% equity in your home. 
  • Your home’s value is $180,000 and you owe $195,000. Dividing $195,000 by $180,000 gives you 1.08, which means you have negative equity. You owe more than your home is worth. 

If you don’t want to run the numbers yourself, you can also use an LTV calculator.

How to Tap Your Home Equity

There are multiple products on the market that can help you tap into your home’s equity, and each have their own benefits and limitations. Here’s a brief overview so you can determine which one may be right for you and your financial needs.

Home Equity Line of Credit (HELOC)

A HELOC is a very popular way homeowners tap into their home equity. A HELOC is a revolving line of credit, much like a credit card. You get a maximum limit, make withdrawals, and then pay down your balance. HELOCs typically have a variable interest rate.

Reverse Mortgage

A reverse mortgage lets seniors 62 years of age or older sell the equity they’ve built in their home back to a lender. Home equity conversion mortgages (HECMs) are among the most common types of reverse mortgages on the market. While a HECM can be beneficial for supplementing your income, there are some limitations that you should consider. These potential drawbacks include variable interest rates and a lowering of your home’s equity. In addition, having a reverse mortgage could affect needs-based programs like Medicaid, and getting out of a reverse mortgage can be difficult. 

Home Equity Investment (HEI)

A home equity investment, or HEI, is different from the traditional home equity products you’ll find on the market. Unlike a HELOC or reverse mortgage, an HEI means you’ll get all of the cash up front in a lump sum so you can do more with your money. You won’t have a minimum monthly payment — in fact, you don’t have to make any payments on your HEI until the 30-year term is up. This gives you more flexibility, and if you pass away before the end of your term, your survivors can take over your HEI if they choose to keep your property. 

An HEI lets you unlock up to $350,000 in exchange for a share of your future home appreciation. It’s equity financing for homeowners.

Learn More About Your Home Equity

Point is an alternative to traditional lenders, offering homeowners like you a way to tap into the home equity they own so that they can do more with their finances. If you’re interested in learning more about home equity products, we’ll gladly answer any of your questions or help you see if you qualify for an HEI.

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