- What is Home Equity
- Home Equity Calculator
- Equity & Ownership Stake
- Eligibility Criteria
- Frequently Asked Questions
The realm of real estate transactions is based on different types of technicalities. It is important to be aware of all the technical aspects involved in a particular transaction to make an informed decision. For instance, investors and home buyers need to know what home equity is. It directly impacts the financial interest of the parties involved in a property transaction.
Let’s find out more about home equity and how it works in terms of property valuation.
What is Home Equity in Real Estate?
Home equity is the value of a homeowner’s stake in their home. It is calculated by subtracting any outstanding debts, such as mortgages from the property’s value. The market value changes over time as mortgage payments are made. Besides market conditions, there are some other easy-to-work-on ways to increase property value. Property valuation is a crucial factor impacting the process of home financing in the UAE.
Moreover, home equity is not just about paying off a mortgage; it can be used as an asset to cover different financial needs. For example, property owners can borrow home equity loans to pay off high-interest debt.
Borrowing against home equity is also known as homeowner’s finance in the UAE. It is offered by different commercial banks. It often comes with lower interest rates than other types of loans because it is secured by the home’s value.
In layman’s terms, home equity is a valuable resource that grows as you pay off your home mortgage. It falls under the refinancing domain and can be used to cater to an individual’s additional financial needs. Home equity can be tapped into for various financial purposes with potentially favourable terms.
How to Calculate Home Equity
As the difference between your home’s current value and the amount you owe on your mortgage, calculating home equity is easy.
To calculate it, find out what similar homes in your area recently sold for; let’s say it’s AED 1.29M AED. Living in Dubai, it would be ideal for you to request property valuation from DLD.
Next, get the balance of your loan from your lender; for example, let’s assume it is AED 550,000. Now, you need to put these values in home equity’s calculation formula:
Home Equity = Value of home − Loan balance
Equity = AED 1,290,000 − AED 550,000
Equity = AED 740,000
According to the home equity calculator, home equity in this case would be AED 740,000. Calculating home equity is even easier than using the RERA rent calculator.
How Home Equity Works for Ownership Stakes
Imagine a homeowner buys an AED 500,000 home by making a downpayment of 20% (AED 100,000). For the rest of the payment, they have taken a mortgage of AED 400,000. Initially, the home equity will be AED 100,000.
Now, if the home’s value stays the same for two years. The mortgage payments reach up during the said duration. The home equity would accumulate to AED 150,000.
On the other hand, if a property value goes up by AED 500,000 during the same two-year duration, paired with the mortgage payment of AED 50,000, the home equity would jump to AED 650,000.
As the ownership stake, the amount of home equity greatly depends on the rising and falling market value of a property. Consulting real estate professionals would also be feasible in such a scenario. Using market knowledge and experience is how a real estate agent calculates a home’s value, which is often nearly accurate.
Understand Home Equity in Real Estate: Eligibility Criteria
For UAE residents, the loan amount for home equity typically ranges from 60% to 80% of the property’s value. Non-residents may encounter stricter conditions, with a borrowing limit often set at 50% of the property value. Meanwhile for more details on home loans for expats in the UAE, read here.
Lenders assess your eligibility based on factors like your credit score, income source and existing financial commitments. Having a solid credit score and a stable income is a major plus. Whether you’re a retiree, employee or self-employed, it can positively influence the loan amount you can qualify for. Moreover,
FAQs
What is a home equity loan?
Home equity is the value of a homeowner’s stake in their property. It is calculated by subtracting outstanding debts, like mortgages, from the property’s current value. A home equity loan serves as a valuable asset that can be used for various financial needs. Here are some FAQs about getting a mortgage in Dubai and tackling the entailing processes.
How does a home equity loan work?
A home equity loan allows you to borrow a lump sum using your home as collateral. The repayment process is typically through fixed monthly instalments and interest rates based on the home’s value
How to calculate home equity?
Calculate home equity by determining the property’s current value and subtracting the outstanding mortgage balance. For instance, if a property in Dubai is valued at AED 1.29M and the loan balance is AED 550,000, the home equity would be AED 740,000. This is how home equity is calculated. Understanding home equity in real estate is important to make an informed decision.
How can I use home equity?
You can use home equity for home improvements, debt consolidation or other financial needs. Before tapping into home equity, assess your financial goals and consider risks. You can even consult with professionals, such as mortgage brokers. However, consider these pros and cons of using a mortgage broker in Dubai for an informed decision.
This was everything to know about home equity in real estate. When applying for home equity or a home loan process in the UAE, applicants must know about the technicalities involved. It is to ensure a smooth process and avoid any potential financial issues.
The availability of different home financing options has made it easier to buy properties in the UAE.
For more updates on real estate home equity uses, stay tuned to dubizzle’s property blog.
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