Find Your Home's Worth

Most noteworthy, home value has a slightly different meaning if you ask a homeowner, appraiser or tax assessor. However in most cases, home value means the amount for which a house would likely sell, otherwise known as the current market value. Mortgage lenders — as well as buyers and sellers — typically rely on professional property appraisers to calculate market value, but there are ways to determine home value on your own.

For home buyers and home sellers, knowing current market value helps you make smart decisions about how much to offer on a house you want, or how to price a home you’re selling. As a homeowner, value is also directly related to your home equity. Equity is computed by subtracting the mortgage balance from the home’s current market value.

In addition, you build equity as you make monthly payments and pay down your principal, but other factors, most notably home price appreciation, can speed up or slow down the equity-building process. With enough equity, you may be able to refinance into a loan at a lower interest rate or drop your private mortgage insurance. Also, you might even be able to remodel your bathroom or pay off credit card debt through a cash-out refinance, home equity loan or home equity line of credit.

Hence, these are important financial decisions that should be made only after obtaining an accurate estimate of your home’s value.

Home equity is the value of your home minus the balance of your mortgage. So to put it another way, home equity represents the portion of the house you’ve “paid off” and therefore own. Equity increases slowly with each mortgage payment, but may grow faster if you make value-boosting home improvements or if home values rise in your area. Therefore, as a homeowner, equity is a valuable asset that directly affects your financial freedom.

Furthermore, more equity means more ways to achieve financial goals. You can make home provements, consolidate debt, cover emergency expenses or even pay college tuition by tapping home equity. So don’t cash out or borrow against home equity just because you have it, though.

Lastly, tapping equity can add years to your mortgage payoff and means less cushion if the home loses value. Therefore, if you have trouble paying the loan for any reason, such as losing your job, the lender could foreclose on your house.

Unlike other assets, such as your van, a house often appreciates over time. In general, real estate appreciates because there’s only so much space for new development. As time goes on, there’s generally more demand for less land, driving up value. If demand drops, however, prices could go down.