# How to Calculate Equity

Congratulations! You are celebrating one year of officially being a homeowner in Virginia Beach, VA. In that year you have immersed yourself in shows like Property Brothers, Fixer Upper, and Rehab Addict and you are ready to knock down some walls to get the ‘open concept’ feel everyone loves. You knew when you purchased the home there were some home improvements you wanted to make down the line, so now is your chance.

## Calculating Equity

Taking equity out of your home through a cash out refinance is a great way to get started on those renovations that would be Chip and JoAnna approved. You’re thinking the renovations will be around \$70,000 and you also have some credit card debt you want to pay down as well. The first step is understanding how much equity you can take out of your home. Typically, cash out refinances allow you to take out 85% of the homes value in equity. If your credit is excellent, you may be able to bump that up to 90% depending on the lender.

Let’s do some math. Your home was appraised at \$350,000 and you owe \$213,050 so the equity of the home would be \$136,950.

If you were to take out the full 85% you could get around \$84,450 to do home improvements and pay down some debts.

## How to Build Equity

There are two ways to build the equity of your home. The first being paying down your mortgage over time to decrease your principal amount. Another way your home can build equity is simple appreciation. The average home across the nation appreciates by 3% every year. But, if you are in a hot, up and coming neighborhood in Miami, Cincinnati, or Boston your home could appreciate at a much faster rate. Houses in more desirable areas tend to have much higher property values.

Let’s say your house isn’t close to a brand-new music venue they just built in Nashville and your home only appreciates at the average 3% per year, that’s just fine. Over the course of 10 years your home will increase in value by 34%.

## Property Value

So how do you get the magic number on how much your home is actually worth? Most refinances require that the home gets appraised by a third party, professionally licensed appraisal company. The appraiser comes out to the home and looks at the condition of the property, similar homes in the area, and how much its surroundings impact the value. Appraisers also take into account the square footage, lot size, number of bedroom and bathrooms, and view to determine the approximate value to be used in the loan.

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