Home Equity: Understanding and Using Your Biggest Asset
Home equity is a strong financial asset that homeowners can use in many ways. It represents the difference between the current market value of your home and the outstanding balance on your mortgage. As you pay down your mortgage and as your home's value appreciates, your equity grows, creating a valuable financial resource. Read more Ways To Build Home Equity.
Did you know you can use your home equity for various purposes?
According to latest research, three out of five home loan holders have at least $100K in accessible equity (the sum a borrower can access while keeping a healthy 20% equity cushion). Learn more about how to Track Your Home Equity.
Don't rush into the decision to pull that cash out of your home. Here are some ways you can make the most of your home equity:
- Home Renovations: Enhance your living space and raise the value of your home to boost your equity even more. Get a new roof and save money on your insurance, update insulation and energy efficient mechanicals and get tax credits or convert part of your home to house aging parents or guests. (Be sure to follow local codes, permits and covenants.)
- Education Expenses: Utilize a lower-interest home equity loan or line of credit (HELOC) to fund your or your children's education (compare to student loan rates before going this route).
- Emergency Expenses: Use home equity as a financial safety net during emergencies. Be sure to put any equity you pull out from your home into safe and accessible investments or interest bearing accounts until you need the money.
- Investing in Real Estate: Buy additional property, either as an investment or a vacation home. Using your equity to make a down-payment for a child's first home is a great way to help them invest in real estate. Make sure they have taken all the home buyer classes and they have a general understanding of home maintenance.
- Starting a Business: Get the money you need to start or expand your business.
- Supplement for Retirement: Supplement your retirement income through a carefully considered reverse mortgage or by selling a higher value house and buying a home with a smaller payment and using the equity to bolster your savings/investments.
When Not to Use Home Equity
- High-Risk Investments: Funding speculative investments can be risky. If the investment fails, you could lose your home.
- Non-Essential Luxuries: Avoid funding vacations, boats, credit cards, or other non-essential purchases. They do not increase your home's value and can put you at financial risk if you're unable to repay the loan.
- Covering Everyday Expenses: Using home equity to cover everyday living expenses may be a sign of more serious financial issues. It's better to address the root causes of financial instability rather than applying a temporary fix.
How to Start Utilizing Home Equity
- Determine Your Equity: Calculate your equity by accessing your home's current market value and subtracting your outstanding mortgage balance. Reach out to me and I can help you with this.
- Define Your Needs: Clearly outline what you intend to use the equity for. This will help you choose the right type of loan, refinance or line of credit.
- Consult with Professionals:
- Real Estate Agent: If you’re considering using equity for real estate investments, or just need help to define your next steps, feel free to contact me. I can provide you with all the info you need and connect you with other professionals (lenders, financial pros, attorneys, etc).
- Lender: Speak with a mortgage lender or financial institution to explore your options for home equity loans or lines of credit. They will inform you on interest rates, terms, and application requirements.
- Financial Advisor: For complex decisions, such as using equity for retirement or business, a financial advisor can offer valuable guidance.
- Apply for the Loan/Line of Credit: Complete the application process with your lender once you've chosen the right financial product and gathered all documentation.
- Plan Your Expenditures: Ensure you have a clear plan for how you will use the funds and manage repayments.
Whether you're looking to improve your home, start a business, or fund major life events, I am here to help you navigate the process of leveraging your home equity. Your journey to financial empowerment begins with understanding and utilizing the resources available to you – let's explore your options together!
Should you sell your home instead of pulling out your equity? Maybe. Check out these Reasons People Sell Their Homes.
