If you’ve owned your home for some time or the market has recently gone up, chances are you’ve built up equity. But how can you use it, and are there other ways to build equity in your home? In this guide, you’ll discover the answers to these questions and ways to convert your equity into cash.
Access Your Home Equity
What Is Home Equity in Real Estate
Home equity is the difference between your home’s current value and your outstanding mortgage balance. So, if your home is worth $395,000 and you owe $325,000 on your mortgage, you have $70,000 in home equity.
How Do You Build Equity in Your Home
Beyond home value increases due to changes in the real estate market, there are a few other ways to build equity in your home.
Make Home Improvements
Some home improvements can substantially improve your home’s value. For instance, you could renovate your kitchen or bathrooms, finish your basement, add an extra bedroom or bathroom, expand the living area, or upgrade your landscaping.
Pay Off Your Mortgage
This will take time unless you’re sitting on a wad of cash. Still, you can speed up the repayment process and build equity faster by making extra principal-only payments each month. Notify the mortgage company that the overage should be allocated to the principal balance. Otherwise, they will apply the extra funds to interest, homeowners insurance and property taxes.
Increase the Down Payment
You also can move into the home with instant equity by increasing the down payment. To illustrate how this works, assume you want to buy a home for $350,000. The mortgage lender is only requiring a 3 percent down payment ($10,500), which means you’ll owe $339,500 ($350,000 – $ 10,500) and have equity of $10,500 ($350,000 – $339,500) if you go this route. But if you increase your down payment to 10 percent ($35,000), you’ll owe $315,000 ($350,000 – $35,000) on the mortgage and move into your home with $35,000 ( $350,000 – $315,000) in equity.
How Do You Lose Home Equity?
Unfortunately, there are also ways you can lose equity in your home.
Refinance to a Larger Mortgage
If you refinance into a larger mortgage to pull cash out of your home, you’ll also see a decline in your home equity. This is usually done through a cash-out refinance, which lets you convert up to 80 percent of your home’s equity into cash.
Get a Second Mortgage
Some homeowners also take out a second mortgage, like a home equity loan, to convert equity into cash. Unfortunately, like cash-out refinances, they also cause you to lose home equity.
Damage or Disrepair to Your House
The value of your home will decline if it sustains damages and you fail to make the much-needed repairs. In turn, you will also lose equity.
Access Your Home Equity
Examples of What You Can Use Your Home Equity from Real Estate
In most instances, homeowners are free to use the equity they pull out however they see fit. Here are some common uses:
1. Renovate Your Home
Instead of going out and buying the home of your dreams, you can make upgrades to your current property. That way, you won’t have to spend hours on end searching for the perfect home or fork over a hefty down payment and closing costs to buy a new place.
2. Make a Large Purchase
Whether you want to buy a second home, purchase your dream car or fund your child’s education, you can use the equity in your home to make it happen.
3. Pay Off Debt
The monthly payments on high-interest debt can place a dent in your wallet. But, depending on how much you owe, they could also cost you several hundred or thousands of dollars more in interest. Or you can tap into your home equity, eliminate those pesky balances and free up funds to meet other pressing financial goals.
4. Start Your Own Business
Do you have an innovative business idea that can help you live life on your own terms while making a difference?. The good news is you can turn your business dreams into a reality by tapping into your home equity.
How to Access Your Home Equity
Both home equity loans and HELOCs are traditional ways to access your home equity. But if you’d prefer not to take out a loan to convert your equity into cash, consider a co-investment from Unison. It gives you cash today in exchange for a share of the future increase or decrease in your home’s value and does not interfere with your agency as the sole owner of your home.
You may be eligible for a co-investment of up to 17.5 percent of your home equity. There are no monthly debt payments, and you’ll have 30 years to decide if you want to sell or remain in your home.
If you’re interested in learning how much equity you can access through a co-investment with Unison, visit the website to get an instant estimate. Simply answer a few simple questions and view your options. There’s no credit check, and you’re not obligated to move forward if the co-investment offer doesn’t quite work for you.
