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How much is your home worth?

Learn if buying a home is a good investment

For many Americans, homeownership is a building block of wealth. A home is often the largest asset Americans own and investing in that asset can have a financial benefit. Paying a mortgage each month helps build equity, and homes that are cared for will often increase in value over time. Plus, homeowners are often eligible for tax benefits that can help them save money.

After you’ve bought a home, it’s helpful to know what it’s worth to keep track of your investment. Calculating your home’s worth is not an exact science and can depend on a number of variables.

What is the value of your home?

There are a few ways to estimate a home’s value. You can use online sites like Zillow or Redfin that give you a ballpark value of your home. These sites are a great way to quickly get an approximation of your home’s worth, but they don’t always provide the most precise number.

You can also get a home appraisal to determine its value. An appraisal is completed by a trained professional who assesses things like your home’s age, location, and size, as well as the value of other, similar houses in your community. Home appraisers usually charge a few hundred dollars to estimate the current fair market value of your home.

Home value versus home equity. What are the differences?

Fair market value is a price for which your home might sell in the current market. If you own your home outright, your home’s market value and your home equity are the same. If you are still paying off your mortgage, then your home’s equity will be less than its market value. Your equity is equal to the current market value of your home, minus your current mortgage balance. Here is an example:

Current fair market value of your home $300,000
Current mortgage balance $175,000
Estimated home equity $125,000

How do you build the value of a home?

You can take steps to build the value of your home. The easiest way to start is by paying down your mortgage balance with your monthly payments. If your mortgage does not include prepayment penalties, you can also make extra or larger payments each month.

Another method is to make renovations to your home that future buyers might value. This can include adding an extra bedroom, bathroom, or patio. It’s a good idea to consult a real estate professional who can help you determine which additions might add the most value for homes in your community.

Finally, 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.

How long does it take to build value in a home?

The short answer is that it varies, and it often happens slowly, over time. Paying down your mortgage principal can build equity, but this typically doesn’t make a big difference during the early years of a mortgage. That’s because with most mortgage amortization schedules, much more of your monthly payment goes toward interest, rather than principal, during the early years of a mortgage.

Home prices can rise slowly, too. In 2021, home values rapidly increased in many communities across America, but this is not always the case. The Federal Housing Finance Agency (FHFA) estimates average home values have increased 6.3% from January 2023 to January 2024. Your home value may increase more or less than this average. Once again, keep in mind that the value of your home can decrease, as well as increase, depending on conditions in your community.

Freedom Mortgage is not a financial advisor. The ideas outlined above are for informational purposes only, are not intended as investment or financial advice, and should not be construed as such. Consult a financial advisor before making important personal financial decisions, and consult a tax advisor for information regarding the deductibility of interest and charges.

Last reviewed and updated September 2023 by Freedom Mortgage.

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