Knowing how much equity you have is the first step in figuring out your options and how much you need to sell your house for to breakeven. It is a very important part of home ownership, real estate in general, and more importantly for you: your personal financial health.
Equity can be available to use when you need it, to pay for unexpected expenses without becoming a slave to credit card companies, to pay for college expenses and medical bills, or to leverage and invest for you and your family’s future.
How Do I Calculate The Equity In My Pittsburgh Property?
There are a few very important numbers involved in a home equity calculation.
MARKET VALUE: This is the amount that someone will actually pay you for the house if it were all fixed up proper. You can get an idea of this by checking out Zillow or Redfin but remember that this value is just an estimate created by an algorithm. Typically, the Zestimate is giving you a value as if your house were a brand new house with little wear and tear and updated kitchens, baths, etc.
MORTGAGE PAYOFF AMOUNT: This will be roughly what you currently owe on your mortgage plus a little bit to cover daily interest accumulation, more bank fees and whatever else the bank decides they want to charge you.
[MARKET VALUE] – [MORTGAGE PAYOFF] = EQUITY
True Accessible Equity (TAE) is a wee bit less than your equity on paper.
If it is an investment property, you will need to factor in capital &/or long terms gains taxes, depreciation recapture and other investment-specific fees. If you don’t sell with Trekside Property Group LLC then you may be on the hook for closing costs, appraisal and inspection fees and realtor commissions. All in all, the fees alone – before taxes – total anywhere from 8-10% of the total sale price of the house, NOT based on the actual equity you had in the property.
That means you actually cannot access all of the equity if you go the traditional route. At Trekside Property Group LLC, we’re built differently. We’re not interested in the “fast cash offer” game. We’re focused on the Best Offer for YOU.
If you’re interested in opening a Home Equity Line Of Credit (HELOC) or a Home Equity Loan, most banks will allow your Loan-To-Value (LTV) to go to a maximum of 80%.
LTV: The Loan-to-Value is a ratio between the total amount of loans you have out on a property divided by the total appraised value of that property. If your house is worth $100,000 and you have a first mortgage balance of $35,000 and a Home Equity Loan opened for $25,000, your LTV is .60.
[35,000 + 25,000] / [100,000] = [60,000] / [100,000] = 0.60 LTV
This would allow you to access approximately $20,000, BUT, you have to factor in closing costs and appraisal costs so the TAE may be closer to $18,000. You’ll pay back $20,000 with interest but the check they send you will be for ~$18,000.
A Real Life Example
Right here in Pittsburgh, we worked with a client who tried to sell their house for nearly a year on the market. They gave up selling with an agent and came to us after they learned that we helped their sister-in-law sell a house after her father passed away. Her name is Beverly.
She checked out Zillow which told her that her house should be worth $95,000. Unfortunately, Zillow has no idea what the condition is of the mechanical systems, the roof, whether you have a kitchen and bathroom from the 1970’s or if it was updated last spring. The realtor did nothing more than put up a sign in the yard and when the house didn’t sell, their only suggestion was to lower the price.
The realtor never explained any of this to her. She had no idea about why the house wasn’t selling for what Zillow told her it was worth so lowering the price was not an option to her. She knew what she had and wouldn’t accept a penny less.
Eventually, the realtor and Beverly split ways and she thought she was going to be forced to take the low-ball cash offers people were offering her over the phone or to be stuck with the house forever. The realtor never mentioned the word equity one time. After nearly a full year of working together, she didn’t know a thing about what true accessible equity was.
Luckily, she found Trekside Property Group LLC and after we learned more about her situation and goals, we tailored The Best Offer for her and put more into her pocket than she would have made selling to the other guys. Even having no equity, she still walked away with money and peace of mind. We still check in on her to this day and I’m sure we will continue to exchange Christmas cards every year for a very long time.
Before You Go
If you’d like to chat more, just fill out the form below and we will contact you within 24 hours to learn more about your situation and how we can help.
If you’d like an outside second opinion, here is an easy to follow post: How To Calculate Your Home’s Equity. Just remember to account for the selling fees, capitals gains taxes and other selling costs mentioned above.
If you do the math and it’s not looking go great for a cash sale or listing with an agent, reach out and we promise to treat you like family.
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