Most homeowners have not yet paid off their mortgage when they choose to sell and move. You might wonder how much money you will have left after the sale of your home. It becomes challenging if you still owe more on your mortgage than your home’s current value.
It’s a huge advantage if a homeowner has equity and wants to sell their home.
What is Equity?
Home equity your property’s market value, minus the total amount still owed on your mortgage loan. When you put a down payment on a new home, you begin with having equity. Equity will rise as you pay off your mortgage and your home’s value appreciates.
While paying your mortgage, remember not all your money goes towards the principal balance, as some of your payments will get distributed towards interest. Equity does not get included when your money goes towards interest. As you pay off your mortgage, the portion going towards the principal balance gets bigger and bigger. This process is called an amortization schedule.
How Does Home Equity Affect the Sale of Your Home?
Having equity will benefit you as you will have cash in your pocket after your home’s sale by paying off your mortgage and covering your selling costs. In other words, you will have some money left over to use as a down payment on your next home or to get used for anything else.
How Much Equity Do You Need?
To determine the amount of equity you need when selling your home, you need to know your reasons for selling.
If you’re looking to relocate, then you will need about 10% equity. If you’re looking to upsize to a bigger home, you will need at least 15% minimum equity. The more equity you have, the better. These ratios aren’t set in stone but can get used as a guideline. No matter what, the bank will still finance you if you have no equity, as long as you meet the rest of their requirements.
The main aim of having enough equity is to have enough funds from your home’s sale to pay closing fees and commission without out-of-pocket expenses.
Having more considerable equity when moving into a bigger home will increase your down payment or at least a fraction of it.
Do You Need Equity to Sell Your Home?
It’s not compulsory to have equity when you sell your home, but it would be beneficial if you had. If you have no equity, you will have to pay off whatever part of your mortgage doesn’t get paid by the sale price and cover the sales costs.
Not having equity will also mean you have no money after selling your home to buy a new one. Many homeowners wait to build up their equity before selling their homes.
How to Build More Equity
If you want to build more equity before selling your home, you may want to look at ways to increase your home’s value.
Pay Off Your Mortgage
The quickest way to build more equity is by paying off your mortgage loan. By paying off your loan, you will reduce the overall outstanding balance that you owe.
Make Home Improvements
If you cannot pay your mortgage loan fast, consider making improvements to your home to increase its value, thereby increasing equity. Modifications can include updating the bathrooms, remodeling, upgrading appliances, or adding anything to the house that will increase your home’s value and equity.
Price appreciation happens over time. If you’re curious about how much your home has appreciated over time, you can use this calculator.
The Formula for Calculating Equity
You can use this formula to help you determine your home equity.
Current market value – Outstanding mortgage balance = Home equity
Let’s look at an example. Of a home that has a current market value of $600,000, and he or she still owes $200,000 on his mortgage loan.
$600,000 – $200,000 = $400,000
Home equity will be $400,000.
Get Help from a Licensed Real Estate Agent
When selling a home, it’s always a good idea to get a licensed professional to help you. By using a licensed real estate agent, they can help you with marketing, negotiations, and everything else to get your home sold for top dollar.
An estate agent can also help get your home’s correct market value to determine how much equity you have. Sometimes getting an appraiser to value your home is a good option, too.
If you’d like to get a real estate agent to call you back, contact us!
Sell Your Home to a Cash Buyer
Selling your home without equity can be daunting, but there is a light at the end of the tunnel. Consider getting a cash buyer to purchase your home if you don’t have enough equity. By not using a real estate agent and selling to a cash buyer, you will be able to sell your home fast.
You will get to avoid having to make improvements to your home to increase its value or waiting for the value of your home to appreciate. These take time and money, and often time and money are what you don’t have.
A cash buyer will look at your home’s potential and take care of all the necessary repairs allowing you the freedom to look for your next perfect home.
We pay top dollar for homes in Massachusetts that are in an as-is condition. We will ensure you’re happy with your cash offer and will let you choose your closing date.
If you’d like to get a cash offer on your home, call or text us at 781-309-7085.