Quick answer
Home equity = home value − all loans on the home. A $500,000 home with a $300,000 mortgage has $200,000 in equity (40%). Lenders usually let you borrow until your total debt reaches 80% to 85% of the value. In that example, that's $100,000 to $125,000. You can't borrow every dollar of equity, because lenders require you to keep a cushion.
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The home equity formula
Equity = home value − first mortgage − any other loans on the home.
Equity % = equity ÷ home value.
Loan-to-value (LTV) = everything you owe ÷ home value.
Example only: a $500,000 home with a $300,000 mortgage has $200,000 of equity. That's 40% equity and a 60% loan-to-value.
How much of your equity you can borrow
Lenders don't let you borrow all of it. They cap your total debt at a percentage of the value, called the combined loan-to-value (CLTV).
| Example: $500,000 home, $300,000 owed | 80% cap | 85% cap | 90% cap |
|---|---|---|---|
| Available to borrow | $100,000 | $125,000 | $150,000 |
Turn that into a credit line with the HELOC calculator or a fixed loan with the home equity loan calculator.
Getting a good value estimate
- Look at recent sales of similar homes nearby, ideally in the last 3 to 6 months.
- Online estimates can be off by 5% or more either way. Use a range, not one number.
- Lenders use their own appraisal or automated valuation. If you've renovated, tell them, because it can raise the value.
Ways your equity grows
Every payment reduces what you owe. Rising prices in your area increase your value. Improvements like kitchens, baths and added space can add value too, though rarely dollar for dollar. Paying a little extra toward principal builds equity fastest when the market is flat.
What people use equity for
Renovations, paying off high-rate debt, college, buying a rental, or a cash reserve. Ideas and worked examples: HELOC examples. Over 62? Your equity can also fund a reverse mortgage.
FAQ
How do I calculate how much equity I have?
Subtract everything you owe on the home, including your mortgage and any HELOC or second loan, from its current market value. A $500,000 home with $300,000 owed has $200,000 in equity, or 40%.
How much of my home equity can I borrow?
Usually until your total debt reaches 80% to 85% of the home's value. With a $500,000 home and $300,000 owed, that's about $100,000 to $125,000.
How much equity do I need for a HELOC?
Most lenders want you to keep at least 15% to 20% equity after the new line, so you need more than that to start.
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