Home Equity 101…

Are you thinking about selling your house? If so, today’s mortgage rates may be making you wonder if that’s the right decision. Some homeowners are reluctant to sell and take on a higher mortgage rate on their next home. If you’re worried about this too, know that even though rates are high right now, so is home equity. Here’s what you need to know.

Bankrate explains exactly what equity is and how it grows:

“Home equity is the portion of your home that you’ve paid off and own outright. It’s the difference between what the home is worth and how much is still owed on your mortgage. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity stake grows.”

In other words, equity is how much your home is worth now, minus what you still owe on your home loan.

Home Equity 101…How Much Equity Do Homeowners Have Now?

Recently, your equity has been growing faster than you might think. To help contextualize just how much the average homeowner has, CoreLogic says:

“. . . the average U.S. homeowner now has about $290,000 in equity.”

That’s because, over the past few years, home prices went up significantly – and those rising prices helped your equity to accumulate faster than usual. While the market has started to normalize, there are still more people wanting to buy homes than there are homes available for sale. This high demand is causing home prices to go up again.

According to the Federal Housing Finance Agency (FHFA), the Census, and ATTOM, a property data provider, nearly two-thirds (68.7%) of homeowners have either fully paid off their mortgages or have at least 50% equity (see chart below):

That means nearly 70% of homeowners have a tremendous amount of equity right now.

Home Equity 101…How Equity Helps with Your Affordability Concerns

With today’s affordability challenges, your equity can make a big difference when you decide to move. There are many ways that you can use the equity you’ve built up in your home to help you buy your next one.

• Be an all-cash buyer: If you’ve been living in your current home for a long time, you might have enough equity to buy a new house without having to take out a loan. If that’s the case, you won’t need to borrow any money or worry about mortgage rates. The National Association of Realtors (NAR) states:

“These all-cash home buyers are happily avoiding the higher mortgage interest rates . . .”

• Make a larger down payment: Your equity could be used toward your next down payment. It might even be enough to let you put a larger amount down, so you won’t have to borrow as much money so today’s rates become less of a sticking point. Experian explains:

“Increasing your down payment lowers your principal loan amount and, consequently, your loan-to-value ratio, which could lead to a lower interest rate offer from your lender.”

• Bridge a loan between the sale of your home and the purchase of another one. “A bridge loan is a short-term loan that allows you to borrow money against your property’s equity. This an excellent option for real estate investors who want to purchase a new property without the pressure of immediately selling their current one. For more information contact your local mortgage professional.”    ~ Karen Chavez, Allied Mortgage Group.

• Lease your home and use as proceeds as additional income to buy. Worth Real Estate Company also offers property management services in situations like this.

Bottom Line

If you’re thinking about moving, the equity you’ve built up can make a big difference, especially today. To find out how much equity you’ve got in your current house and how you can use it for your next home, let’s connect.

Follow Worth Real Estate Company on Facebook or Instagram for more tips, or contact us today to learn more about why housing inventory is so low. Would you like more information about selling and fully utilizing the equity in your home? We got you when it comes to Home Equity 101.

We have over 21+ years of experience as licensed real estate agents. We are very comfortable that you will enjoy the experience and wisdom. Let us prove how we have earned the reputation… “The Only Real Estate Company Worth Knowing”!