Want To Take Equity Out of Your Home? Try These Strategies

Posted by : Moneek

Homeowners build up equity in their properties they can use for renovations, sending a child to college, paying off debt, or other purchases. If you’re a homeowner, you may be curious about how to tap into your equity. There are multiple ways to do it, which we’ll discuss today.

First, What Is Equity?

Your home’s equity is the dollar amount difference between what your home is worth and what you owe on it. Equity accumulates in two ways. As you pay on your home every month, your loan balance goes down, which increases your equity. In addition, as property values rise, your equity does, too. Over time, you may have tens of thousands of dollars in equity sitting in your home.

How to Access Your Home’s Equity

When you want to tap into your equity, you have several choices:

Do a Cash-Out Refinance

If you have equity in your home, you can refinance your current mortgage loan with a cash-out refinance. This process is similar to the one you went through when you first bought your home. You’ll work with a loan officer, providing your financial information and allowing them to pull your credit report. They may also need to do another appraisal. You’ll also go through closing, where you’ll receive your cash-out amount to use as you wish.

Take Out a Home Equity Line of Credit (HELOC)

A HELOC is essentially a line of credit that you can pull from as you need it. You would work with a lender to get a HELOC set up, then you would have a “draw period” where you can pull out cash. HELOCs allow you to pull several small amounts out or one big amount, which gives you lots of flexibility. Once the draw period ends, you’ll be required to pay the money back in the agreed-upon time frame.
Use a Reverse Mortgage

A reverse mortgage purchase is an attractive option for homeowners 62 years old or older who want to use their equity as income. With reverse mortgages, the lender makes monthly payments to the homeowner that they can then use as living expenses. When the property sells, part (or all) of the proceeds go to pay the lender back.

Sell Your Home

If you’ve built equity in your home, you can access all of it by selling the property. At closing, you will pay off your mortgage balance and then receive the entire amount of equity to use as you wish. Keep in mind that you may incur seller’s fees that you need to cover, and making a profit on a home sale may also come with tax obligations.

Building equity is one of the most lucrative benefits of homeownership. It provides you with a solid nest egg of funds you can tap into in various ways throughout your life.

Want To Take Equity Out of Your Home? Try These Strategies