Fundamentals
How to Estimate Your Equity
A four-step method for arriving at a defensible equity figure, plus the loan-to-value math lenders actually use.
Estimating equity well is mostly about being honest with the value input. The arithmetic is trivial; the discipline is in not flattering yourself on price.
Step one — establish a credible value
Gather three independent reads on what the home is worth:
- An automated valuation from one or more listing sites, noting that these are statistical estimates with wide error bars.
- A comparative market analysis — recent sale prices of genuinely similar nearby homes.
- Where a decision is significant, a licensed appraisal, which is the figure a lender will rely on.
Take the middle of these, or lean low if they disagree sharply.
Step two — total your secured debts
Add every loan secured by the property: the first mortgage, any home equity line of credit (HELOC) or second mortgage, and any liens such as unpaid contractor or tax liens. Use current payoff balances, not original loan amounts.
Step three — subtract
| Item | Amount |
|---|---|
| Estimated market value | $420,000 |
| First mortgage payoff | $238,000 |
| HELOC balance | $22,000 |
| Gross equity | $160,000 |
Step four — apply the lender’s ceiling
To see what is borrowable, apply a combined loan-to-value limit. At 85 percent CLTV:
$420,000 × 0.85 = $357,000 maximum secured debt $357,000 − $260,000 owed = $97,000 potentially accessible
A note on selling costs
If your goal is the cash you would net from a sale rather than a loan, subtract transaction costs too — agent commissions, transfer taxes, and any concessions typically run 6 to 10 percent of the sale price. Equity on paper and cash in hand are not the same number.