It's a source of pride and relief to know that your home naturally appreciates over time. Thank goodness, because you just shelled out $350 on a leaky pipe!
But...
"Most homeowners do nothing with that information. It's something to talk about at the cocktail party on Saturday, right?" says Kevin Yoder, a top-selling agent in Grand Rapids, Michigan. "I bought my house for X, and now it's worth Y. Yay!"
And that's a wasted opportunity! Because the more you know about your home's value, the more empowered you are to make decisions regarding your property and future home sale. Instead of just stroking your ego with that number, here are 6 productive action steps you can take...
1. See if you can ditch that private mortgage insurance
“The first thing that comes to mind: Is it time to knock off PMI from your monthly mortgage payments?” says Yoder.
Lenders in many cases require you to purchase private mortgage insurance (PMI) if you put less than 20% down on your house. PMI typically amounts to between 0.5%-1% of the purchase price. For a $200,000 mortgage, your PMI could be $1,000 to $2,000 per year.
So if you’re one of those homeowners that could only afford a 10%-15% down payment (or less), your monthly mortgage payments likely include the cost of PMI in addition to your taxes, principal, and interest. However, on the date when your principal balance is scheduled to fall to 80% of the home’s original value (or in other words you build up at least 20% equity in your home), you have the right to request that your servicer cancel PMI, according to the Consumer Financial Protection Bureau (CFPB). When that principal balance hits 78% of your home’s original value, your lender is required to terminate PMI automatically, the CFPB notes.
Every homeowner wants to get that extra cost of PMI removed ASAP. To qualify to remove PMI, you can reach that 80% threshold by paying down your mortgage every month. However, you may be able to knock off that PMI cost another way (and sooner) if home values are rising in your area.
For example:
Let’s say you bought your house for $250,000 a few years ago. You notice that local news reports indicate that property values are rising and it’s possible that your home is worth more now than when you originally purchased it. You estimate the current value to be $275,000 based on some initial research. If your outstanding mortgage balance is less than $220,000 (or 80% of $275,000) then you may be able to remove the PMI. That’s a lower threshold than 80% of $250,000, where your outstanding balance would be capped at $200,000 to qualify for PMI removal. In this case rising home values have increased your stake in the property, making you a potentially lower-risk borrower.
Note, however, many lenders will require that you provide evidence of your home’s current value to grant your PMI-removal request. Don’t be surprised if you’re asked to get a professional home appraisal. An online home valuation tool or comparative market analysis won’t suffice, though some lenders may accept a broker price opinion (BPO) by a licensed real estate agent or broker. Contact your servicer to find out what your options are, including any PMI-removal requirements such as a good payment history or removing junior liens (like a second mortgage) on the property.
2. Make sure your homeowners insurance covers your property’s full value
If you discover your home’s value has significantly increased, it might be time to reevaluate your homeowners insurance policy.
If your home is undervalued in your policy, it could mean you’re not covered for the cost of its full value if something were to happen. When you first bought your home and drew up an insurance policy, it should have covered at least what you paid for your home.
But, fast forward a few years or decades, and your home has likely increased in value. Or, you might live in a booming real estate market (as of late 2019, the cities of Charlotte, Phoenix, and Tampa are leading the way with annual price gains exceeding 5%, according to data from Case Shiller).
In these instances, your original home insurance policy might not be cutting it anymore. Your insurance company probably has policies in place for general inflation, but if you find your home has dramatically increased in value, or you’ve added an addition or made updates, it’s time to talk to your home insurance company.
You’ll want to take a look at your insurance dwelling limit, or estimated cost to rebuild the home as it stands now. If you’ve updated or expanded your home, this will have changed since the time of purchase. With an appraisal in hand, set up a call or meeting with your insurance company for a refresher on your coverage policy.
It’s also worth considering your policy’s stance on cash value, or replacement cost, which can be negotiated as part of the policy.
Cash value in an insurance policy means the company will pay the depreciated value of an item at the time it was damaged or lost. So not what you paid for the new kitchen appliances at the time of their installation, but the value of them today, after they’ve been used and in your home for several months.
On the flip side, the replacement cost will pay out the amount equal to what you paid for it initially.
Trying to keep track of the value of the items or updates in your home might feel exhausting, but when you make big purchases, like a new appliance or home equipment, save a receipt of the purchase. When you decide to renegotiate your home’s insurance policy to reflect its current value, you can bring this evidence to substantiate your request.
3. Lower your property taxes
In checking on your home’s value, you may be bummed out to discover it’s currently worth less than what you thought. However, this can mean some savings when it comes to city property taxes.
Instead of gasping when your property taxes come due, you can appeal the city’s assessment for a lower payment. It might sound like a headache, or futile to appeal the city’s assessment of your property, but consider this: according to the National Taxpayers Union, 60% of properties are overvalued by assessors.
If — based on informal research or an official appraisal — you feel you’re overpaying on property taxes, you can appeal to your county or municipality to have your taxes lowered. The appeal process varies by area, but you’ll likely submit a written request within a specified timeline.
Your request should include some evidence, a formal appraisal being the strongest, that your property has been overassessed. Your request could also include recent home sales in your area, or even what your neighbors pay in property tax. Bottom line, you’ve got to show the tax office you’re paying too much in property tax compared to the market.
In some areas, the request might be all you need. However, some counties will follow up the request with a formal hearing, where they might ask about some specifics on your property or the research you dug up.
4. Update your home’s value on online listing sites to reflect renovations and improvements
Even if you’re in the earliest stages of putting your house on the market, you’ll want to start owning your home’s history and value online. Claiming your property on sites like Zillow, Redfin, and Realtor, and updating your home’s online value, can change the perception of the property to better align with its current value.
“When it comes time to sell, it makes a lot of sense to make sure all that stuff’s up to date,” says Yoder. “Because if someone’s going to look at your home on an online platform and it’s priced $50,000 under your list price, that’s a problem. It’s a case of perception vs. reality.”
Visiting, claiming, and updating these profiles also gives you time to consider the updates and changes in your home you want to highlight in your future home sale.
5. Find out how much equity you’ve built up
Understanding equity, or the current market value of your home minus your outstanding mortgage balance, puts you in a better place to understand your finances overall. You may be beginning to think about a move and knowing the value of your property could lead to an accelerated sale timeline, as long as you factor in the difference between home equity and your home sale proceeds.
There’s no hard and fast rule when it comes to having enough equity to sell your home, but generally the more of your home you own, the more money you’ll make in the case of a sale. Check out FtBendHomeSearch’s comprehensive guide to understanding home equity to learn more.
Knowing how much equity you’ve built up will also give you the opportunity to take out a Home Equity Line of Credit. When you reach the point where the value of your home is more than what you owe on the mortgage, you may be able to borrow against your home with a HELOC to be repaid on a fixed interest rate. This can help you access the financing you need to add value to your property with a strategic home renovation or improvement use the HELOC to invest in additional property.
Knowing your home’s value can make the investment work for you.
6. Keep an eye out for the best time to sell your home
Is this the year you plan to sell your home? If you check your home’s value regularly, it just might be. However, if you’re unsure, listen to your gut, even if you’ve seen a huge upswing in value.
“I find myself talking people out of selling because they’re just doing it for weird reasons,” Yoder explains. “I think the biggest thing is don’t sell just because your home has value on it. Unless there’s something strategic in that.”
If you don’t have your next move set up, whether it’s downsizing, or heading to a new neighborhood or city, don’t just sell to sell.
That being said, if you’ve been ready to put a ”For Sale” sign for some time, getting an idea of the value of your home is an essential first step in the process. Keeping up with your home’s value, and researching the best time to sell in your area, can give you an idea of trends, growth, or slowdown in the area and your property in particular.
What are the different ways you can find out your home’s worth?
You shouldn’t feel pressured to check your home’s value, say, every day, but Yoder suggests taking a look at how the value of your property has changed annually at the very least.
Start with a simple online tool like FtBendHomeSearch’s free Home Value Estimator, which pulls information from multiple sources to create a real-time home value estimate based on current market trends. We also use a 7-question quiz to learn more about your property and enhance the accuracy of our estimate.
Then, if you’re ready for more information, partner with a top agent in your area to conduct a comparative market analysis. More than an estimate, a CMA will use data from recent sales in your area to give you an idea what buyers would pay for it. Creating a CMA is often part of the beginning stages of a listing consultation, meaning you’re ready to start the home sale process.
If you’re serious about putting your home on the market in the next few years, or just want a single number for peace of mind, getting a home appraisal can be a great next step. A credible home appraisal will cost between $450-$500 and can help you price your home for a potential sale, knock off your PMI in certain cases, or fight your property tax assessment. You don’t need an appraisal every year, but if you are looking for an official number, working with a well-recommended appraiser might be just the ticket.
Whether a sale is imminent or not, the more you know about your home and its value, the more you can make informed decisions about your future in it.