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Mortgage Refinance and Home Equity Loans

Many people would like to know exactly how to calculate the equity in their home and how to increase the value of your home. An important step for mortgage refinance and home equity loans is to determine the loan to value ratio of your property. First let’s look at a few examples.

Example #1

You would like to refinance your home, it is a detached 2 story, 3 bedrooms, 2 bathrooms, attached garage and a finished basement. It is located close to public transit and there are many schools in the area. The house is in very good condition, there are no repairs to be made and the kitchen and bathroom have been recently renovated.

All these positive factors allow you now to go on to internet and look up comparable listing for your home within a reason area. You find that the average comparable home in your area sells for around $300,000.00, based on your research this is the estimated market value of your home. You owe a total of $150,000.00 to the first mortgage lender.

Market value of your home $300,000.00

Less any mortgages/liens $150,000.00

Total Equity $150,000.00

Now to find your loan to value ratio:

Total debt $150,000.00

Divided by Market value of your home $300,000.00

Equals your loan to value ratio 50%

In this case a broker who handles mortgage refinance and home equity loans will look at the numbers you have given and determine that you should qualify for a loan based on the LTV.

Example #2

You have a home with about 200 acres of land, the house is in good condition with 4 bedrooms and a very large building in the rear of the property that can hold 2 cars and has about 2000 ft2 of workshop space.

You will be surprised to find out that when you are looking to refinance your home that most appraisals only take into consideration the main house, the workshop and 5 acres of land. Most appraisers do not consider the value of the remaining 195 acres of land because the raw land would be difficult to sell and the land is not really required by the main buildings, also the additional land makes getting a direct comparative property value very difficult. This can lead to your property being undervalued, to prevent this from happening ask the appraiser to also do a separate appraisal on the additional 195 acres.

Appraised value of your home $280,000.00

Appraised value of raw land $120,000.00

Total value of the property $400,000.00

Less any mortgages/liens $300,000.00

Total Equity $100,000.00

Now to find your loan to value ratio:

Total debt $300,000.00

Divided by Market value of your home $400,000.00

Equals your loan to value ratio 75%

Mortgage refinance and home equity loans for this property are a little more difficult to arrange due to the higher LTV. Other factors such as a good credit score will improve your chances of getting the money that you are looking for.

Example #3

You own a 3 bedroom house that is within 15 minutes of an major city and is adjacent to a major highway. It has an estimated market value of $200,000.00 and the remaining mortgage is $20,000.00. You have an excellent credit rating and a very secure job that provides you with a comfortable income. You would like to refinance your home to pay for an addition to the rear of the house.

Market value of your home $200,000.00

Less any mortgages/liens $ 20,000.00

Total Equity $180,000.00

Now to find your loan to value ratio:

Total debt $ 20,000.00

Divided by Market value of your home $200,000.00

Equals your loan to value ratio 10%

The mortgage refinance and home equity loans options for a property like this are very good. The low LTV ratio of 10% should lead to a low interest mortgage. The broker will have many different lenders competing to refinance your home loan; due to the quality of the loan the fees should also be fairly low.

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