For many Americans, homeownership is a building block of wealth. A home is often the largest asset you'll ever own, so it's natural to wonder what it's worth. Knowing your home value comes in handy when considering options if you're thinking about selling, refinancing, or planning for the future. In this guide, we'll break down what home value means, how it's determined, and why it matters.

What Is Home Value?

Home value refers to the estimated price your home might sell for in today's market. It's not a fixed number and can fluctuate frequently as it's determined by factors like location, size or square footage, condition, and recent comparable sales, also called real estate comps. These factors reflect what a buyer would likely be willing to pay and what a seller could expect to receive.

In many cases, "home value" and "property value" are used interchangeably in everyday conversations. But depending on the situation, you may also hear related terms like "market value," "assessed value," and "appraised value."

Common Home Value Terms and What They Mean

When people talk about a home's value, they may be referring to one of several different value types, each with their own purpose and use:

• Property value: A broad term that generally refers to what a home (and the land it sits on) is worth. In most homeowner situations, property value is another way of saying home value.
• Market value: This is a general idea of what buyers may realistically pay for a home in the current market. You may also see this described as fair market value (FMV), the more formal, legal term for the same idea.
• Assessed value: A value assigned by a local tax assessor to help calculate property taxes. This number may not match what your home could sell for.
• Appraised value: A value estimate provided by a professional appraiser. Appraisals typically consider recent comparable home sales and the home's condition to determine value at a specific point in time.
• Home equity: Your home equity is equal to the current market value of your home, minus your current mortgage balance. If you own your home outright, your home's market value and your home equity are the same. If you're still paying off your mortgage, then your home's equity will be less than its market value.

How to Determine a Home's Value

Calculating your home's worth isn't an exact science and can depend on many variables, but there are a few ways to estimate a home's value. The best option depends on how accurate you need the number to be:

• Online home value estimators: Many websites let you search your address to get an estimate of your home's current value and see how it's changed over time. Just remember—these tools provide estimates, not official appraisals, and your home's true value is determined by a licensed appraiser.
• Home appraisal: You can also get a home appraisal to determine its value. An appraisal is completed by a licensed professional who assesses things like your home's age, location, and size, as well as the value of other, similar houses within your community.
• Comps: You can look at comparable home sales, which means looking at sale prices for similar homes that have sold recently in your area.
• Comparative market analysis (CMA): A real estate agent's CMA can provide a more tailored estimate based on your home and neighborhood's market trends.

Importance of Understanding Home Value

Understanding your home value can help you make smarter decisions in a variety of situations. For example, if you're thinking about selling, it can help you set realistic expectations for your listing price and potential profit. And if you're refinancing, it can give you a better sense of whether you may qualify for better loan terms or if you'll need an appraisal to confirm the home's value.

Home value also affects your home equity, so checking it can help you estimate how much you may be able to borrow for major expenses or renovations. If you're deciding whether a project is worth the cost, knowing your home value helps you prioritize home improvements that support value instead of spending money on upgrades that may not move the needle. For instance, fixing a dated and worn roof may improve your home's appeal more than a high-end upgrade that doesn't match other properties in the area would.

How to Build the Value of a Home

The value of your home often increases when the values of other homes in your community increase. If the prices of homes in your neighborhood go up, this can raise your home's price, too. Conversely, the value of your home can decrease if the values of surrounding homes go down.

The easiest way to build your home's value is to pay down your mortgage balance each month. If your mortgage doesn't include prepayment penalties, you can also make extra or larger payments each month. Freedom Mortgage doesn't have prepayment penalties, so you can make extra payments at any time.

Other methods include:

• Strategic repairs and upgrades: This can include adding an extra bedroom, bathroom, or patio, or updating a kitchen. You can also improve curb appeal with simple exterior updates for a small boost.
• Keep up with routine maintenance: This can help prevent bigger issues down the road.
• Pay attention to local trends: It's a good idea to consult a real estate professional who can help you determine which additions might add the most value to a home in your community.

Even small improvements can help your home show better, and a well-maintained home may stand out when buyers compare it to similar listings.

Final Thoughts: What Your Home Value Means for You

Home value isn't just one number. It can vary depending on how it's calculated and why you need it. Whether you're getting a quick estimate online or preparing for a refinance or sale, understanding the basics can help you make more confident decisions leading up to your next move.

If you're considering refinancing, knowing your home value and estimated equity can also help you understand what options may be available. Get prequalified when you're ready to take the next step so you can explore rates, refinance loan types, and terms.