Ready to tap your home's rising equity and spend it on renovations or anything you like? Laura covers four ways to access your equity without having to sell your property and move into another home.
As a homeowner, you may be wondering whether you should take advantage of the hot real estate market and make the most of your home’s appreciation by selling your home or tapping your equity. There’s no right or wrong answer, but there are a few factors to consider to make the right decision. Keep reading to learn the best ways to access your home equity.
Since July 2020, the median home sale price increased more than 20% year over year to $385,650. And with mortgage rates dropping, buyers are eager to take advantage of the hot market to lock in less expensive home loans.
Given the tight market, real estate is typically selling for more than the asking price, sometimes hundreds of thousands of dollars more. And lately, sellers who haven’t secured a new home are adding contingencies that protect them by remaining in the house until they purchase a new one. While bridge loans and other short-term financing options can help buyers expedite the process, they don't come without risks.
Consider tapping into your equity
Fortunately, you don’t have to sell your home to enjoy the benefits of rising home equity. Instead, you can get a home equity loan to fund an addition, give your kitchen or bathroom a facelift, or make a down payment on that beach house you’ve been dreaming about.
Here are four ways to tap your home's equity:
1. Cash-out Refinance
A cash-out refinance can be beneficial in a couple of ways, allowing you to fund renovations and improvements as well as potentially enabling you to lock in a lower interest rate on your mortgage. However, it's essential to keep in mind that if you go this route, you extend your repayment period, which could mean paying more interest over the life of your loan. Plus, you have to pay various fees, including the application, closing, origination, and appraisal.
2. Home Equity Loan
A home equity loan offers a fixed rate and provides cash in one lump sum payment, which can work well if you’re looking to fund a renovation or home improvement. It's important to note that the qualification and approval processes may hinge on your lender's credit score requirements. Like with a cash-out refinance, you'll have to pay certain underwriting fees, including an appraisal.
3. Home Equity Line of Credit (HELOC)
A HELOC can also give you access to your home equity. While there’s flexibility with the amount and frequency you can take cash out, one downside is that HELOCs have variable rates. That means your monthly payment can fluctuate. In addition, if your credit score or home value decreases, your lender can freeze your account. Typically you have fewer upfront fees compared to a refinance or loan, but will be required to pay for an appraisal.
4. Home Equity Investment
A home equity investment, offered by companies such as Hometap, gives you a portion of your equity in cash in exchange for a share of the future value of your home. The approval process is relatively quick, such as getting funding in a few weeks, and there are no monthly payments or interest.
Deciding whether to sell your home or access your equity is a choice that should depend on your amount of equity, financial situation, and goals.
The best part is that a home equity investment lets you remain in your house and avoid the hassle and cost of moving. Plus, you're unrestricted in how you spend the money. You can use Hometap's Fit Quiz to determine if a home equity investment may be wise for your situation.
Plus, you’re unrestricted in terms of what you use the money for. The best part is that a home equity investment lets you remain in your house and avoid the hassle and cost of moving.
Deciding whether to sell your home or access your equity is a choice that should depend on your amount of equity, financial situation, and your overall financial goals. Do plenty of research and planning, so you can confidently move forward with a home sale or submitting an application to get the funding you need.