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What Is Equity and How Large a Loan Can I Get?

Equity Definition and Common Loan Maximums

The “formula” for determining your equity is quite simple. First, determine (or effectively estimate) your home's fair market value (FMV). Next, subtract the balance of your first mortgage loan. The difference equals your equity in the home. For instance, if your home is worth $250,000 and your first mortgage is $100,000, your equity is $150,000. The size of the loan you can get will be based on the following –

The percentage of your home's FMV your lender will allow (usually between 80% and 90%);
The amount of your first mortgage loan;
Your credit report and score; and
Your income and expenses, which give the lender an idea of how much debt you can afford.

The maximum loan that is allowed will be determined by your lender combined with the highest amount you can afford based on your income and credit situation.

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