How to get the most equity out of your home
If you're a homeowner, your home could be a valuable source of cash for a number of purposes. By tapping into your home equity — how much value you've built in your home — you can access funds to cover an emergency, pay for a big expense or even build wealth for the future.
There are several ways to do this, from home equity loans and home equity lines of credit (HELOCs) to cash-out refinancing and reverse mortgages. Whatever option you choose, you can take steps to ensure you get the most out of your home equity.
Explore your home equity options here to see how much you might be able to borrow.
How to get the most equity out of your home
If you're thinking of drawing from your home equity, here are four ways to increase how much you may be able to get.
Wait until home values are high
Your home equity is calculated by subtracting your outstanding mortgage balance from your home's current market value. The more your home is worth, the more equity you have.
For example, let's say you bought your home for $400,000, and you've paid off $100,000 of your mortgage, bringing your outstanding balance down to $300,000. If your home has since appreciated to $500,000, you'd have $200,000 in equity ($500,000 - $300,000). If your home appreciated to $550,000, you'd have $250,000 in equity ($550,000 - $300,000), and so forth.
If you don't need funds right away, you're better off waiting until home values are high so you have more equity to draw from. You can monitor your home's value using a site like Zillow.
Find out if a home equity loan or HELOC is right for you by checking current rates here.
Make home improvements
Certain home improvements can boost your home's value. For example, Zillow lists kitchen and bathroom updates, new windows and curb appeal enhancements among the best improvements to boost home value.
Whether it's a minor improvement like refinishing flooring or a bigger one like replacing an old roof, the more value you add to your home, the more you may able to take out of it.
Pay more toward your mortgage
Lowering your mortgage balance also increases your home equity. As long as your lender doesn't charge a prepayment penalty, you can pay your mortgage down faster by paying more each month or by making half your mortgage payment every two weeks.
When you pay your mortgage biweekly, you make a total of 26 half-payments per year. That's 13 full payments — one payment more than you'd make if you paid once a month for 12 months. It can be an easy way to put more toward your mortgage without significantly limiting your budget.
Improve your credit score
Your credit score affects how much lenders are willing to let you borrow. The higher your score, the more confident they are you'll pay them back and the more they're willing to lend you.
Lenders typically allow you to borrow up to 80% of your home equity. The higher your credit score, the bigger the percentage they may give you.
You'll generally need a score in the mid-to-high 600s to be approved for a home equity loan or HELOC. A score of 700 or above is more likely to get you a higher amount (and at a better rate). If your score is on the low side, focus on improving it before applying for a home equity loan or HELOC to increase how much you might be able to borrow.
The bottom line
If you can stand to wait before tapping into your home equity, you can increase how much you might be able to borrow. Applying when home values are high, making home improvements, paying more toward your mortgage and boosting your credit score can all give you access to a larger amount of equity.
In the meantime, make sure you'll meet other requirements, such as a low debt-to-income ratio, to make applying and approval easier when you're ready.
Start your home equity loan or HELOC search by comparing your options now.
