Any valuation of your house is an estimate. Even a professional appraisal that is paid for is an opinion, albeit an educated one, of what your property might sell for if it were on the market.
But what if you’re not selling it?
Knowing what your property is worth isn’t only for when you are considering selling. Whether you are staying in or selling your home, I’ll give you 6 big reasons why you need to know your home’s true value.
An undervalued home means undervalued insurance. Your homeowners’ insurance coverage is determined by the appraised value of your home. This value is established by a professional appraiser who physically inspects the property, including your roof, foundation, and in many cases, the interior of your home, to determine your appraised home value.
This dollar figure is used to calculate coverage needed for either the “actual cash value” or the “replacement cost” of your home. If you’ve made improvements that could impact your home value, you’ll want to let your insurance agent know so he or she can help you get the proper coverage. An annual review of your insurance coverage with your agent can be a great way to stay current on the value of your home.
Won’t this increase the cost of my insurance? You already know it will, but don’t gamble on it. Don’t think of it as an unnecessary expense in as much as it is an extra layer of wealth protection for what is likely the largest asset you own.
An overvalued home means higher taxes. Taxes on your home and property are based on another value called the assessed value. This value is determined by your city, county or state, and is often different from your appraised value because it is not based on a physical appraisal of the property, but rather an assessment of historical sales of similar properties in a similar area.
Your assessed home value is sent to you annually, or you can access it on your local city, county or state assessor’s website. By keeping track of your home’s assessed value, you’ll be able to better understand changes to your property taxes and keep from being over-taxed as the value of your home changes with the real estate market.
This content should not be treated as legal or tax advice, but contesting or requesting a re-assessment of value should only be done if the value has decreased or the property has suffered such damage that it isn’t worth what it used to be worth anymore. Getting a home re-assessed in an accelerating market where values are increasing will only increase your tax payment.
No matter if property values are rising, falling, or stagnant, you need to understand how you’re being taxed. Everything starts with your real estate assessment letter, which reveals what your property is judged to be worth by the local government.
Read your real estate assessment letter carefully, look for errors, and challenge your assessment if it seems too high.
If you find a way to reduce your real estate assessment, whether by contesting it or qualifying for an exemption, the savings can add up. The median annual property tax paid in the U.S. is about $2,000, or about 1% of the $200,000 median home value. By lowering the value of the home by 15%, you’d also lower the tax assessment by 15% since property tax is calculated based on value. So you’d save $300 on taxes.
GETTING A LINE OF CREDIT
Sometimes refinancing your mortgage to get a cash-out may not be the ideal move if you have an interest rate lower than the market. In that case, if you want to borrow cash against your house, getting a Home Equity Line of Credit (HELOC) as a 2nd mortgage is a much better idea. But, just like a refinance loan, HELOCs also require that you have a certain equity level in your house, typically a minimum of 20%-25%. Once again, knowing your home value will guide you if getting a HELOC is something you could qualify for. For more information on HELOC loans call (888)-696-6MTG
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MAKING HOME IMPROVEMENTS
Home improvements are primarily made for two reasons – making the house more comfortable to live in or preparing the house for sale to fetch a better selling price. If your home is already priced at the higher end in a neighborhood, making home improvements may not yield a suitable return on investment. For example, if you live in a neighborhood where the highest priced homes are in the $400,000 range and your house is already worth $375,000; even after investing $50,000 in upgrades it may not sell for more than $400,000. So all the money and time invested could be a waste. Understanding your home value and that of the neighborhood you live in should be the first step before you decide on making expensive home improvements.
Depending on the loan program, lenders would allow you to borrow a maximum of 75% to 96.5% against your property. While you need to qualify on other credit parameters, equity in the house is one of the more important underwriting criteria. Up to a certain point, the more equity you have the better loan terms you would qualify for. Also, knowing your home value tells you how big a mortgage you can take – whether its refinancing to get a better rate, lower payment or taking a cash-out to satisfy other needs.
SELLING YOUR HOUSE
If you are selling the house, you absolutely need to know the value of your home. The net proceeds you make after selling a house is your selling price minus the loan balance minus the selling cost. Most likely you already know your loan balance and the selling cost prevailing in your area. The only variable being the selling price. Getting a better idea about your home value is definitely a good first step if you are considering selling in near future.
By now hopefully, you are convinced that knowing your home value can do a lot of good.