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By FinanceBuddy Staff Writer
If you want to determine the amount of equity you have in your home, you must determine how much you owe versus how much the home is worth. For purposes of refinancing, worth is determined by an appraisal by someone of the bank's choosing. They will come in, assess your home, take pictures and write a detailed report comparing the size, style and amenities of your home with those of similar size and stature. They will then check to see the amount that similar homes in your neighborhood have sold for and determine a value based on how your house fits in.
If you are not refinancing and you want to know the amount of equity in your home, the only sure way to determine it is to sell your home. A house may appraise for much more or less than a house is worth depending on the market and the needs of your community at the time you are ready to sell. If you owe $150,000 on a home that sells for $300,000, then your equity in the home is $150,000. If that same home appraises for $325,000 for refinancing purposes the bank will consider your equity $175,000, assuming that is what it will sell for, but there are always no guarantees when it comes to real estate sales.
You may want to also consider realtor fees if you will incur them and they will usually run you between four percent and six percent of the sale value when you sell your home. This will reduce the amount of equity that goes into your pocket. Your equity may increase or decrease as the economy shifts in either direction. If your equity is low waiting it out is the best advice, and as you continue to pay down your loan, you will continue to gain equity.