Frequently Asked Questions: Home Equity

Determining equity is simple. Take your home's value, and then subtract all amounts that are owed on that property. The difference is the amount of equity you have.

To determine your home’s value, use your best guess or find a home value estimator. We can also help you determine your home’s current worth.

Ex: If you have a property worth $200,000, and the total mortgage balances owed on the property are $120,000, then you have a total of $80,000 in equity. Most lenders allow you to borrow a percentage of this equity.

LTV stands for loan-to-value. It is the total amount of liens on the property divided by its fair market value.

LTV is used to determine how much you are eligible to borrow and is one of the factors used in determining your interest rate. A lender typically allows you to borrow up to 80% LTV. The lender will multiply the lower of the purchase price or the estimated market value by 80%, then subtract the outstanding liens on the property. The remaining balance represents what you may be able to borrow. Keep in mind that LTV requirements may vary by state and lender.

Ex: If you have a property worth $200,000, and the total mortgage balances owed on the property are $120,000, then you have a total of $80,000 in equity. If a lender typically allows you to borrow up to 80% LTV, then you would be eligible to borrow $40,000 in equity.

When reviewing your application information, an underwriter examines three main factors to assess whether you qualify for the loan and is also used to determine your interest rate:

1. Your credit history (FICO score)
2. Your loan-to-value ratio
3. Your debt-to-income ratio

With a home equity line of credit (HELOC), you are only required to pay interest on the outstanding principal balance during the draw period. You can make principal payments during the draw period, but they aren't required. If you do repay principal during the draw period, those funds can be borrowed again.

Note that interest-only payments do not build home equity. At the end of your 10-year draw period, your balance will be converted to a principal and interest monthly payment during the repayment period. At the end of the draw period, even if the interest rate stays the same, your monthly payment will increase, possibly significantly, because you will be required to pay both principal and interest.

Home equity loans on the other hand require a fixed monthly payment of both principal and interest.

Determining equity is simple. Take your home's value, and then subtract all amounts that are owed on that property. The difference is the amount of equity you have.

To determine your home’s value, use your best guess or find a home value estimator. We can also help you determine your home’s current worth.

Ex: If you have a property worth $200,000, and the total mortgage balances owed on the property are $120,000, then you have a total of $80,000 in equity.

LTV stands for loan-to-value. It is the total amount of liens on the property divided by its fair market value.

LTV is used to determine how much you are eligible to borrow and is one of the factors used in determining your interest rate. A lender typically allows you to borrow up to 80% LTV. The lender will multiply the lower of the purchase price or the estimated market value by 80%, then subtract the outstanding liens on the property. The remaining balance represents what you may be able to borrow. Keep in mind that LTV requirements may vary by state and lender.

Ex: If you have a property worth $200,000, and the total mortgage balances owed on the property are $120,000, then you have a total of $80,000 in equity. If a lender typically allows you to borrow up to 80% LTV, then you would be eligible to borrow $40,000 in equity.

When reviewing your application information, an underwriter examines three main factors to assess whether you qualify for the loan and is also used to determine your interest rate:

1. Your credit history (FICO score)
2. Your loan-to-value ratio
3. Your debt-to-income ratio