Home Values: Knowing Important Numbers

You don't need to be an accountant to keep track of home values, local home sales, and the amount owed on mortgage loans.  Knowing these numbers can help prevent problems with refinancing a mortgage that exceeds your home's value, or selling a home that is worth less than mortgage loans owed against it.

Establishing Home Value: Who Can Help

There are several ways to obtain a home value estimate. Generally speaking, the more you pay for a home value estimate, the more accurate the estimate will be in terms of evaluating your home. You can get a very general estimate by using free home value calculators available online. These calculators provide information based on general location and market data and their results are strictly meant to be used as 'ballpark" estimates.

For more specific information, you can request a broker's opinion of value and or a market analysis from local real estate professionals. This type of home value estimate incorporates recent sales in your area, and determines home value based on a general inspection of your home.

An appraisal is a detailed report prepared in a standard format that incorporates specific information about your home's condition, environmental factors, and your neighborhood to determine its value. An appraisal also uses comparable homes in your area to assist in establishing home value.  Appraisals typically cost several hundred dollars and are generally used by mortgage lenders to establish home value for loan approval purposes. You may want to invest in an appraisal if you've completed extensive home renovation or remodeling.

Reviewing home sales in your area for the past several months, and comparing sale prices to your current home value can provide an idea of where you stand when comparing home value to mortgage debt.

LTV and Your Home Value

LTV, or Loan to Value, is important for every homeowner to understand. LTV refers to the ratio of mortgage debt to home value and it measures how much home equity you have. Here's how it works.

Divide the amount of mortgage loan(s) owed by your current home value. If you owe $200,000 on your first mortgage and $50,000 on a home equity line of credit (HELOC), and your home is worth $350,000, your LTV is 71% (250k / 350k), and your home equity is 29% or $100,000.  Maintaining a cushion of home equity can provide protection against owing more on your mortgage than your home is worth -- which could be an issue if you have to move and are forced to sell your home in a soft market.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.