What’s Your Home Worth Today?

Estimated market value versus appraised value

People use the word “value” to mean several different figures. They are not interchangeable.

• Online or automated estimates (often called automated valuation models, or AVMs) are computer-generated figures that compare information about a property — such as size, bedrooms, bathrooms, and location — with recent sales and other market data. The Consumer Financial Protection Bureau notes that a lender may pull an AVM early in an application and later require a full appraisal, and that those figures can differ. CFPB on valuations
• An appraisal is an opinion of value prepared by a licensed appraiser, typically after reviewing the property and comparable sales. For most mortgage transactions, the lender orders the appraisal. Fannie Mae explains that an appraisal looks at the home’s condition, features, location, and recent nearby sales. Fannie Mae on appraisals
• Value acceptance may apply on some eligible loans underwritten through Fannie Mae Desktop Underwriter. When a lender receives and exercises a value acceptance offer, Fannie Mae accepts the value the lender submitted (the contract price on a purchase, or the lender’s or borrower’s estimate on a refinance) without requiring an appraisal. Eligibility is determined on the loan file; it is not automatic, and the lender must still order an appraisal if it has reason to believe one is warranted. Fannie Mae value acceptance, Selling Guide A2-2-06

The ListReports report linked from this page is an automated estimate. It is a starting point, not an appraisal, a broker price opinion, a tax assessment, or a determination of what a buyer will pay or a lender will use.

How home equity is calculated

The CFPB describes equity, in simple terms, as the amount a property is currently worth minus what is owed on it. If you also have a second mortgage, a home equity loan, or a HELOC balance, those liens should be counted too. Loan-to-value (LTV) compares one loan to the property value. Combined loan-to-value (CLTV) compares the total of the liens that have to be included to that value. Fannie Mae defines those ratios in Selling Guide B2-1.2-01 and B2-1.2-02. CFPB on home equity loans, CFPB on LTV

Use the optional calculator below to see how the arithmetic works with figures you supply. Maximum CLTV limits vary by lender and program. This tool does not calculate a loan amount or a cash-out amount.

What equity may mean for buying another home

If you sell, documented net proceeds (the sale price minus selling costs and all liens) can sometimes be used toward a down payment and closing costs on the next home. If you buy before the current home sells, a lender may have to count both housing payments unless a documented exception applies, and not every homeowner can qualify to carry two homes. Temporary cash flow, insurance on a vacant home, and Michigan tax questions such as the Principal Residence Exemption can also come up.

If you are considering a purchase, you can also Start Your Preapproval With Shane. That link opens a secure application with Ease Mortgage. This page never collects sensitive borrower information.

Cash-out refinance considerations

A cash-out refinance replaces your current first mortgage with a new first mortgage that is larger than the amount you owe, and you receive the difference in cash (after costs). The new interest rate, term, and payment apply to the entire new loan, not only to the cash you take out. Closing costs are typical and can be paid in cash or, in some cases, financed in the new loan.

Fannie Mae Selling Guide B2-1.3-03 sets eligibility rules for cash-out refinances delivered to Fannie Mae, including seasoning and ownership conditions. In general, an existing first mortgage must have been originated at least 12 months before the new loan, and at least one borrower must have been on title for at least six months, with listed exceptions. Other investors, FHA, VA, USDA, and individual lenders can have different overlays. This is not a determination that a cash-out refinance will be available in your situation. For a side-by-side educational comparison with a HELOC, see the cash-out vs. HELOC calculator.

HELOC versus a home equity loan

Both products typically use your home as collateral and usually sit behind your first mortgage as a second lien. They work differently:

• A home equity loan is generally a closed-end, lump-sum loan with a fixed interest rate and a set repayment schedule. CFPB: What is a home equity loan?
• A HELOC is generally a revolving line of credit. You may draw, repay, and draw again during a draw period, often paying interest only on what you have drawn. HELOC rates are often variable. After the draw period, a repayment period begins, and some plans can require a large balloon payment. Lenders may also have the right, under the agreement, to freeze or reduce the line if your home’s value falls or your finances change. CFPB: What is a HELOC?

The CFPB’s HELOC brochure explains draw and repayment periods, variable-rate risk, and common fees. Neither option is automatically better. Qualification, rates, fees, and combined loan-to-value limits vary by lender and program.

Debt consolidation tradeoffs

Some homeowners consider using a cash-out refinance, a home equity loan, or a HELOC to pay off credit cards or other unsecured balances. A lower interest rate or a single monthly payment can look attractive. The CFPB cautions that this can still cost more overall, especially if the new loan lasts much longer than the debts it replaces, if there are closing costs, or if balances are run back up after they are paid off. CFPB on consolidating credit card debt

• A lower payment can come with a longer term and more total interest.
• Closing costs may add hundreds or thousands of dollars to the transaction.
• Using equity now can leave less of it for a later sale, a repair, or another home purchase.
• If home values fall, a high combined loan-to-value ratio can make it harder to sell or refinance.

The extra-principal and amortization calculator can help you explore how term and payment interact, using figures you enter. That tool is also educational only.

Why turning unsecured debt into home-secured debt can increase risk

Credit cards and many personal loans are unsecured: the lender does not have a mortgage on your house. A cash-out refinance, HELOC, or home equity loan generally does use your home as collateral. The CFPB states that if you cannot repay a home equity loan or HELOC, the lender could foreclose on your home. The same collateral risk applies to a first mortgage, including a cash-out refinance that replaces it. CFPB home equity loan, CFPB on second mortgages

That does not mean these products are never appropriate. It does mean the trade is not only about a lower rate or payment. You are attaching repayment of that debt to the house. This page does not recommend using (or avoiding) home equity to consolidate other debts; it is a risk to understand before you apply.

Keep exploring