Is Your House Included in Your Net Worth?

Calculating your net worth offers a clear picture of your financial standing, measuring what you own versus what you owe. This assessment provides a snapshot of your financial health at a specific point in time. This article explains how your home fits into your net worth calculation and guides you through understanding its role in your overall financial assessment.

Understanding Net Worth

Net worth is a financial metric representing an individual’s financial health, determined by subtracting total liabilities from total assets. It indicates whether you have more resources than debts. Regularly calculating net worth helps track financial progress and make informed decisions.

Assets are everything of value you own that can be converted into cash. These include:
Cash in checking and savings accounts
Investment portfolios such as stocks, bonds, and mutual funds
Retirement savings like 401(k)s and IRAs
Vehicles
Other real estate
Valuable personal possessions like art or jewelry

Liabilities are financial obligations or debts owed to others. These include:
Outstanding balances on credit cards
Personal loans
Student loans
Auto loans
Mortgages on real estate

Your Home as an Asset

Your home is included when calculating your net worth. Use its current market value, which is the price it would likely sell for today, rather than the original purchase price. This current valuation provides a more realistic snapshot of your financial position.

You can determine your home’s current market value through several methods. A professional appraisal, often required for refinancing or selling, provides an independent and detailed valuation. Real estate agents can also perform a comparative market analysis (CMA), which estimates value by examining recent sales of similar properties in your area.

Various reputable online valuation tools can offer estimates based on public records and market data. Only the market value of the home is considered an asset in this calculation; any outstanding mortgage is accounted for separately as a liability.

Considering Mortgage Debt

While your home’s market value is an asset, the outstanding balance on your mortgage is a liability that reduces your net worth. Your home’s contribution to your net worth is its market value less the remaining mortgage debt, often referred to as home equity.

Other home-related debts are also liabilities. These include home equity lines of credit (HELOCs) or second mortgages, and should be included in your calculations.

Ongoing homeownership expenses like property taxes, homeowner’s insurance, and maintenance costs are not included in net worth calculations. While not liabilities, they impact your cash flow and can affect your ability to accumulate assets or pay down debt.

Calculating Your Net Worth

Calculating your net worth uses a formula: Total Assets minus Total Liabilities equals Net Worth. This calculation reveals your current financial position and can be tracked over time to monitor progress.

Begin by listing all your assets and their current market values. Include your home’s current market value, cash accounts, investment portfolios, retirement funds, and other valuable possessions like vehicles.

Next, compile a list of all outstanding liabilities. This includes your mortgage balance, credit card debts, student loans, car loans, and any other personal debts. Accurately totaling these obligations is important for a precise calculation.

Once you have summed your total assets and total liabilities, perform the final subtraction. For example, if you have total assets of $450,000 (including a home valued at $300,000, investments of $100,000, and $50,000 in cash and other assets) and total liabilities of $200,000 (with a $180,000 mortgage and $20,000 in other debts), your net worth would be $250,000 ($450,000 – $200,000).