Take Advantage of Your Home Equity: A Homeowner’s Guide

 

 

Homeownership offers many advantages over renting, including a stable living environment, predictable monthly payments, and the freedom to make modifications. Neighborhoods with high rates of homeownership have less crime and more civic engagement. Additionally, studies show that homeowners are happier and healthier than renters, and their children do better in school.1

 

But one of the biggest perks of homeownership is the opportunity to build wealth over time. Researchers at the Urban Institute found that homeownership is financially beneficial for most families,2and a recent study showed that the median net worth of homeowners can be up to 80 times greater than that of renters in some areas.3

 

So how does purchasing a home help you build wealth? And what steps should you take to maximize the potential of your investment? Find out how to harness the power of home equity for a secure financial future.

 

 

WHAT IS HOME EQUITY?

 

Home equity is the difference between what your home is worth and the amount you owe on your mortgage. So, for example, if your home would currently sell for $250,000, and the remaining balance on your mortgage is $200,000, then you have $50,000 in home equity.

 

$250,000 (Home’s Market Value)

-           $200,000 (Mortgage Balance)

______________________________

             $50,000 (Home Equity)

 

The equity in your home is considered a non-liquid asset. It’s your money; but rather than sitting in a bank account, it’s providing you with a place to live. And when you factor in the potential of appreciation, an investment in real estate will likely offer a better return than any savings account available today.

 

 

HOW DOES HOME EQUITY BUILD WEALTH?

 

A mortgage payment is a type of “forced savings” for home buyers. When you make a mortgage payment each month, a portion of the money goes towards interest on your loan, and the remaining part goes towards paying off your principal, or loan balance. That means the amount of money you owe the bank is reduced every month. As your loan balance goes down, your home equity goes up.

 

Additionally, unlike other assets that you borrow money to purchase, the value of your home generally increases, or appreciates, over time. For example, when you pay off your car loan after five or seven years, you will own it outright. But if you try to sell it, the car will be worth much less than when you bought it. However, when you purchase a home, its value typically rises over time. So when you sell it, not only will you have grown your equity through your monthly mortgage payments, but in most cases, your home’s market value will be higher than what you originally paid. And even if you only put down 10% at the time of purchase—or pay off just a small portion of your mortgage—you get to keep 100% of the property’s appreciated value. That’s the wealth-building power of real estate.

 

 

WHAT CAN I DO TO GROW MY HOME’S EQUITY FASTER?

 

Now that you understand the benefits of building equity, you may wonder how you can speed up your rate of growth. There are two basic ways to increase the equity in your home:

 

1)    Pay down your mortgage.

 

We shared earlier that your home’s equity goes up as your mortgage balance goes down. So paying down your mortgage is one way to increase the equity in your home.

 

Some homeowners do this by adding a little extra to their payment each month, making one additional mortgage payment per year, or making a lump-sum payment when extra money becomes available—like an annual bonus, gift, or inheritance.

 

Before making any extra payments, however, be sure to check with your mortgage lender about the specific terms of your loan. Some mortgages have prepayment penalties. And it’s important to ensure that if you do make additional payments, the money will be applied to your loan principal.

 

Another option to pay off your mortgage faster is to decrease your amortization period. For example, if you can afford the larger monthly payments, you might consider refinancing from a 30-year or 25-year mortgage to a 15-year mortgage. Not only will you grow your home equity faster, but you could also save a bundle in interest over the life of your loan.

 

2)    Raise your home’s market value.

 

Boosting the market value of your property is another way to grow your home equity. While many factors that contribute to your property’s appreciation are out of your control (e.g. demographic trends or the strength of the economy) there are things you can do to increase what it’s worth.

 

For example, many homeowners enjoy do-it-yourself projects that can add value at a relatively low cost. Others choose to invest in larger, strategic upgrades. Keep in mind, you won’t necessarily get back every dollar you invest in your home. In fact, according to Remodeling Magazine’slatest Cost vs. Value Report, the remodeling project with the highest return on investment is a garage door replacement, which costs about $3600 and is expected to recoup 97.5% at resale. In contrast, an upscale kitchen remodel—which can cost around $130,000—averages less than a 60% return on investment.4

 

Of course, keeping up with routine maintenance is the most important thing you can do to protect your property’s value. Neglecting to maintain your home’s structure and systems could have a negative impact on its value—therefore reducing your home equity. So be sure to stay on top of recommended maintenance and repairs.

 

 

HOW DO I ACCESS MY HOME EQUITY IF I NEED IT?

 

When you put your money into a checking or savings account, it’s easy to make a withdrawal when needed. However, tapping into your home equity is a little more complicated.

 

The primary way homeowners access their equity is by selling their home. Many sellers will use their equity as a downpayment on a new home. Or some homeowners may choose to downsize and use the equity to supplement their income or retirement savings.

 

But what if you want to access the equity in your home while you’re still living in it? Maybe you want to finance a home renovation, consolidate debt, or pay for college. To do that, you will need to take out a loan using your home equity as collateral. 

 

There are several ways to borrow against your home equity, depending on your needs and qualifications:5

 

1)    Second Mortgage - A second mortgage, also known as a home equity loan, is structured similar to a primary mortgage. You borrow a lump-sum amount, which you are responsible for paying back—with interest—over a set period of time. Most second mortgages have a fixed interest rate and provide the borrower with a predictable monthly payment. Keep in mind, if you take out a home equity loan, you will be making monthly payments on bothyour primary and secondary mortgages, so budget accordingly.

 

2)    Cash-Out Refinance - With a cash-out refinance, you refinance your primary mortgage for a higher amount than you currently owe. Then you pay off your original mortgage and keep the difference as cash. This option may be preferable to a second mortgage if you have a high interest rate on your current mortgage or prefer to make just one payment per month.

 

3)    Home Equity Line of Credit (HELOC) - A home equity line of credit, or HELOC, is a revolving line of credit, similar to a credit card. It allows you to draw out money as you need it instead of taking out a lump sum all at once. A HELOC may come with a checkbook or debit card to enable easy access to funds. You will only need to make payments on the amount of money that has been drawn. Similar to a credit card, the interest rate on a HELOC is variable, so your payment each month could change depending on how much you borrow and how interest rates fluctuate.

 

4)   Reverse Mortgage - A reverse mortgage enables qualifying seniors to borrow against the equity in their home to supplement their retirement funds. In most cases, the loan (plus interest) doesn’t need to be repaid until the homeowners sell, move, or are deceased.6

 

Tapping into your home equity may be a good option for some homeowners, but it’s important to do your research first. In some cases, another type of loan or financing method may offer a lower interest rate or better terms to fit your needs. And it’s important to remember that defaulting on a home equity loan could result in foreclosure. Ask us for a referral to a lender or financial adviser to find out if a home equity loan is right for you.

 

 

WE’RE HERE TO HELP YOU

 

Wherever you are in the equity-growing process, we can help. We work with buyers to find the perfect home to begin their wealth-building journey. We also offer free assistance to existing homeowners who want to know their home’s current market value to refinance or secure a home equity loan. And when you’re ready to sell, we can help you get top dollar to maximize your equity stake. Contact us today to schedule a complimentary consultation!

 

 

The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

 

 

Sources:

1.     National Association of Realtors -
https://www.nar.realtor/blogs/economists-outlook/highlights-from-social-benefits-of-homeownership-and-stable-housing

2.     Urban Institute - 
https://www.urban.org/urban-wire/homeownership-still-financially-better-renting

3.     Census Bureau -
https://www.census.gov/library/stories/2019/08/gaps-in-wealth-americans-by-household-type.html

4.     Remodeling Magazine -
https://www.remodeling.hw.net/cost-vs-value/2019/

5.     Investopedia -
https://www.investopedia.com/mortgage/heloc/home-equity/

6.     Bankrate -
https://www.bankrate.com/mortgage/reverse-mortgage-guide/

 

 

 

Sept. 23, 2019

Ready to Sell Your Home?

housing market graphic

Ready to sell your home? We have some tips and tricks to get you to the top of the market!

When it comes to selling your home, it’s all about presentation and showing buyers how great it is to live in your home! To make this happen, you will need to strategize the BEST way to set your home apart from your neighbors. These four steps will help you sell your home fast and make the most money possible!

Here’s how to win over buyers, get noticed and sell your home!

Number 1 - Invest in AMAZING listing photos

Most buyers decide within seconds of viewing pictures if they are interested in the property! These photos set the stage for your listing and they are the determining factor on whether or not a buyer schedules a showing. While cell phone cameras are impressive, nothing beats the eye and expertise of hiring a photographer who specializes in real estate photography. BeUrban only works with the top local photographers to shoot and edit our photos. Not only do we use the best photographers, our agents are always onsite for the photoshoot and have training on how to stage the space and get the best angles and lighting! We always go above and beyond for our clients. Statistically, listings with high quality photography sell 33% faster than the competition!

Number 2 - Know the Market Value and price your home to sell!

Regardless of the strength of the market, some homes may sit on the market for months and months! This can be very discouraging to sellers and buyers alike. It may even make buyers wonder “what’s wrong with this place??”

Most of the time in this circumstance, it’s because a home is overpriced. Every buyer has a budget and when searching for homes, an overpriced home will sit in the same category and compete with homes that are priced correctly! This means the house will sit on the market until the price is finally dropped to the correct place.

Alternatively, if you price your home correctly, it will show amongst the nicest homes within their budgets and will lead to more showings and a sale! You never know? You could find some who falls in love with the home and will pay a premium to close the deal! All of this leads to a higher net profit on the sale of your home.

Did you know our website offers a “Home Value Estimator” for instant pricing of the value of your home calculated by recent market data in your neighborhood? It’s easy to use and give instant results! If you need more help determining the ideal list price for your home. Pricing your home competitively from the start = more money in your pocket!

Number 3 - Make each showing count!

When a buyer takes the necessary steps to schedule a showing, this is your moment to shine! We recommend to always make your home showing ready in case a short notice request comes through. Many times buyers are deterred by too many limitations on availability. Be “show ready” as much as possible!

What does “SHOW READY” entail? Keep things organized in case an impromptu request comes through. It may be a little extra effort for busy professionals and families but putting a bit more time into keep your home tidy, fresh-smelling and ready for drop in buyers will help your home sell fast! (Plus, the faster it sells, the quicker you can get back to your regular routine!)

Number 4 – Follow our tried and true marketing plan

sold homeYou will find some agents list homes the old fashioned way – put up a sign, add the listing to MLS and pray it sells! Time’s have changed! 9 out of 10 buyers find their homes from an online search and THEN bring their choices to their agent!

Our team gets that. We have invested in the latest technology and search engine optimization so our properties are where buyer’s look! Not only do we focus on pre-listing campaigns designed to drive interest and curiosity to your home, then we focus on post listing so your homes stays on top of the searches wherever buyers go!

We utilize social media as well to connect buyers with channels to find their dream home so you can move on to your next step!

Convinced??

Time to get ahead of the competition! Contact us to schedule a no commitment consultation to see how we can help you rock the sale of your home!

Posted in Selling Your Home
July 31, 2017

Curious About Local Real Estate?

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Curious about local real estate? So are we! Every month we review trends in our real estate market and consider the number of homes on the market in each price tier, the amount of time particular homes have been listed for sale, specific neighborhood trends, the median price and square footage of each home sold and so much more. We’d love to invite you to do the same!

Get Local Market Reports Sent Directly to You

You can sign up here to receive your own market report, delivered as often as you like! It contains current information on pending, active and just sold properties so you can see actual homes in your neighborhood. You can review your area on a larger scale, as well, by refining your search to include properties across the city or county. As you notice price and size trends, please contact us for clarification or to have any questions answered.

We can definitely fill you in on details that are not listed on the report and help you determine the best home for you. If you are wondering if now is the time to sell, please try out our INSTANT home value tool. You’ll get an estimate on the value of your property in today’s market. Either way, we hope to hear from you soon as you get to know our neighborhoods and local real estate market better.

Posted in Market Updates