If you’ve lived in your home for a bit, chances are you’ve built up a substantial amount of equity. This is also the case if the market has appreciated swiftly in your area and your home is worth far more than you paid for it.
Either way, you could convert your equity into cash through a home equity loan or co-investment. But first, you’ll need to determine how much equity you have in your home.
How to Calculate the Equity You Have In Your Home
It’s relatively easy to compute the amount of equity you have in your home. Simply determine the current value of your house and subtract the outstanding mortgage balance and any other home equity loans from this figure.
To illustrate, assume you purchase a home for $500,000 and make a down payment of $50,000, leaving the starting mortgage balance at $450,000. Over time, you’ve made $125,000 in mortgage payments and currently owe $325,000. If your home is now worth $575,000, you have $250,000 in equity ($575,000 – $325,000).
Access Your Home Equity
How to Take Equity Out of Your House
Most lenders and co-investment companies cap the amount you can take out of your house at a certain percentage. And with a home equity co-investment, you can access equity without taking on debt. Below is an overview of ways you can unlock your home equity.
Home Equity Loan
A home equity loan lets you borrow between 80 and 90 percent of your home’s market value minus the amount owed on the mortgage. Loan proceeds are dispersed in a lump sum, and you’ll make equal monthly payments for a set period as the interest rate is fixed.
It acts as a second mortgage that’s secured by the collateral in your home. Consequently, falling behind on payments could put your home at risk for foreclosure.
Using the scenario above, if the lender approved you for a home equity loan, you could be eligible for between $55,000 ($475,000 * .80 – $325,000) and $102,500 ($475,000 * .90 – $325,000).
Home Equity Line of Credit (HELOC)
Like a home equity loan, a home equity line of credit (HELOC) also acts as a second mortgage. However, you’ll get access to a pool of funds that you can make withdrawals from during what’s referred to as the draw period. You’re free to withdraw and repay as often as needed and will make interest-only payments.
When the draw period ends, withdrawals will no longer be permitted. You will also make monthly payments (principal and interest) on the outstanding balance. However, this amount can fluctuate as the interest rate for HELOCs is variable.
Cash-out Refinance
When you use a cash-out refinance to take equity out of your home, the lender swaps your current mortgage with a new one. It includes the existing balance and the amount of cash you take out. Most lenders allow you to tap into 80 percent of your home’s value minus what’s owed on the mortgage.
Take a closer look at how a cash-out refinance works using the scenario mentioned above:
You could get approved for up to $55,000 ($475,000 * .80 – $325,000). But instead of dispersing these funds to you through a second mortgage, the lender will roll the amount you borrow into the existing loan balance. Consequently, you’ll get a new mortgage for $380,000 ($325,000 + $55,000). And you could pay more in interest over the life of the loan if the new rate is higher.
Home Equity Co-Investment
A home equity co-investment is a non-traditional way to take equity out of your home. The investing company provides an upfront cash payment in exchange for a share of the future increase in your home’s value. You won’t be on the hook for monthly payments since a home equity co-investment isn’t a loan, and you can use the funds as you see fit.
At the end of the agreement term, you can either sell the home or buy out the contract. Either way, the investing company will receive the original co-investment amount plus their share of the home’s change in value.
Access Your Home Equity
Homeowners Also Asked…
Yes, a home equity loan or HELOC allows you to take money out of your home without refinancing. You can also use a home equity co-investment to unlock equity without refinancing.
Yes, you can get a home equity loan, cash-out refinance or co-investment to take equity out of your house as cash.
Home equity loan products and co-investments generally do not have restrictions on how funds can be used.
How to Take Equity Out of Your Home Without a Loan
If you want to leverage the equity in your home without taking on additional debt, consider a co-investment from Unison. You can use the funds to pay off debt, complete home improvements or renovations, fund early retirement or meet another essential financial goal.
To qualify, you’ll need a middle FICO score of 620. The allowable debt-to-income percentage depends on your credit score – the higher your credit score, the higher your allowable DTI.
Unison offers co-investments for up to 17.5 percent of your current home value, with amounts ranging between $30,000 and $500,000. The cash you receive will be in exchange for a percentage of your home’s future increase or decrease in value.
You’ll retain ownership of your home. Furthermore, you can continue to capitalize on the benefits of homeownership, including itemized federal income-tax deductions for property taxes and mortgage interest.
Here’s how it works:
- Step 1: Determine if you’re pre-qualified without impacting your credit score.
- Step 2: Submit an application if you’re pre-qualified and wish to move forward. You can also call Unison to speak with a team member who can help you get started or answer any questions you may have.
- Step 3: Upon credit-approval, the Unison team will coordinate with you to schedule an appraisal of your home.
- Step 4: If approved, review your offer letter and closing package. Sign on the dotted line to execute the agreement, and you will receive funds in as little as three days from closing.
You have up to 30 years to sell the home or buy out the agreement. Get started today by completing the online form to get an estimate of how much you could be eligible for.
