When you purchase a home, many lenders will require you to make a down payment of 20 percent of the loan amount. This gives you 20 percent equity right away. When you don't start with a down payment of 20 percent, your balance will eventually accumulate 20 percent equity from payments made. The balance owed and the fair market value help you determine how much equity you have in your home. The amount of equity you have increases as the fair market value of your home increases.
Step 1
Determine the fair market value of your home. Contact a professional appraiser to have your home appraised. There will be a cost involved. You can also visit the Zillow website and enter your address in the search bar and hit go. An estimate of your property will appear, along with recent comparable home sales in your neighborhood.
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Step 2
Find out how much you owe on your mortgage. Your mortgage balance will be located on your statement. A customer service representative at your mortgage lender can also provide you with the balance on your mortgage.
Step 3
Subtract the balance on your loan and from the fair market value of your home to determine the amount of equity. A home valued at $100,000 with a balance of $80,000 has equity of $20,000.
Step 4
Divide the $20,000 equity figure by the fair market value of $100,000 to get the percent of equity, 20 percent.
Tip
When you have a down payment of 20 percent, you immediately have 20 percent equity. Having a 20 percent down payment helps you avoid private mortgage insurance, which is insurance required by the lender in case you default.
Having a 20 percent down payment helps you avoid having an escrow account according to the website E Home Mortgage Loan, (see references). Some lenders still require you to pay escrow even with 20 percent equity according to E Home Mortgage Loan. Escrow accounts are set up to help you pay your taxes and insurance.
Once you reach the 20 percent equity level, you can have the private mortgage insurance removed from your loan by contacting your lender.
You can receive an approximate value for your home by going to the website Zillow.com and entering your address in the search bar. This figure is an estimate. Comparable sales are homes in your neighborhood that have recently sold and are similar in design and structure to your home.
Warning
If your property value decreases because of market conditions, your percent of equity decreases
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