House prices in the United States are as high as ever – and there is no sign in the market that they are in turmoil. According to a report from Zillow real estate market, average house prices in 46 of the 50 largest metro areas in the country grew by more than 10% in May compared to the previous year. And house values have increased by more than 13% on average from last year. In June, the US average home price was $ 385,000, compared to $ 342,000 in June 2020.
All of this may be a concern for potential home buyers – but millions of homeowners across the US are taking advantage of this unprecedented spike in home values. And there are many ways to take advantage of their home equity, including home equity loan, line of credit and cash out refinancing. But just as important is the question of how best to leverage that equity. In addition to describing some of my own movements below, I interviewed homeowners from across the U.S. to explore the various ways in which you can take advantage of your flourishing home equity.
Renovate or remodel
It does not need to be sold to take advantage of the value of your home. If you are planning to stay in your placement, using your equity for home improvements is a great way to make your space more manageable – and to enhance its resale value.
In 2009, web designer and blogger Will Creech bought his 1956 medieval house in Charlotte, North Carolina. “At the time, it was a bit on the high side at $ 270,000, but now it’s worth $ 500,000 now,” he says. Creech and his wife have invested most of their equity in home renovations, and while they have discussed moving or adding new upgrades in the future, Creech is generally happy to stay where they are. “If the value continues to climb, I personally would prefer to do nothing,” he says.
Some renovation projects can add value to your home. According to a Homelight study, refinishing or installing hardwood floors, focusing on curb appeal and replacing old roofs, has the highest return on investment. And, depending on the projects you choose, some of your loan interest may be tax deductible. See the IRS guide on qualifying deductions here.
Build a new home
I was one of the millions who took advantage of their home equity last year while using a refinance loan. Some used the money to create an emergency fund or to pay bills. Others used it to fund home renovations, as out-of-home spending opportunities narrowed. But my eye was retired.
When I moved to Seattle in 2012, I was struck by the already competitive and competitive real estate market. My husband and I broke 20% together for a minimum payment on an artisan house outside the city and watched over the next nine years as house prices rose – and then tripled – in our region.
We refinanced our basic mortgage at a lower interest rate and added $ 500 of the monthly payment. The cash refinancing put out $ 400 with our monthly payment. In the end, we are now paying $ 100 less per month to keep the mortgages on our main residence and vacation home in Chelan, Washington, where we will be living after retirement.
Get better mortgage terms
If a valuation boost to your home equity has increased beyond the 20% threshold, it may be a good time to refinance. A high home value coupled with a low interest rate can open the door to new mortgage opportunities: You can shorten your loan term, cut your monthly payment or cancel your private mortgage insurance – a policy you don’t have to have only when you have less than 20% equity in your home.
Jacqueline Sanchez made these few moves. A real estate investor and co – owner of Invested Wallet, a personal finance website, bought his house in Omaha, Nebraska, for $ 209,000 in 2015 – and its value has continued to grow ever since. “According to Zillow, my house was worth $ 306,000,” she says. “With an increase in value, I refinanced to get rid of the mortgage insurance and reduced my loan term by five years.”
Buy an investment property
Being a landlord is a great way to earn passive income. If you have collected equity through your primary residence, you may be able to divert some of it to a rental property.
Tawnya Redding bought her first home in a suburb of Portland, Oregon, in 2015. “I worked diligently to pay my mortgage down ahead of schedule,” says the personal finance blogger. “That, combined with the soaring house prices in the area, means that I am sitting on over $ 250,000 in equity.” Redding plans to reach a home equity credit line, or HELOC, when the time is right. “My plan is to continue to save, build equity and be ready for when and if the market slows or expires,” she says.
Pay for college
College is already expensive, and the price of a four – year degree is estimated to cost about $ 200,000 by 2036, according to Vanguard. You can use your increased home equity to help cover the cost of tuition in the future.
That is Alexander Lowry’s plan. “We bought our house in Hamilton, Massachusetts, when I moved to the area to teach,” says Gordon College professor and father of two. “We closed in February 2018 at $ 560,000, and our house is now worth more than $ 700,000. I see the rise in value as an opportunity to pay for college for our girls.”
Lowry’s children are now toddlers. But he plans to sell the house when they get closer to college age. But there’s one way to use equity to pay for education – you could also use cash out refinancing or HELOC. And you can pour the proceeds into a 529 college advantage tax savings plan or an IRA Wheel.
Sell your home and move
The most obvious way to cash in on your equity is to sell your home and shift the proceeds towards a minimum payment on new property. According to the National Association of Realtors, 6.5 million homeowners in the United States sold their property last year – the highest number since 2006. However, when you sell, you will need a new place to live, which can be challenging. significant. As we noted in our companion article outlining the ways to take advantage of home equity, prices are high almost everywhere, there is intense competition and it is becoming increasingly difficult to find the right home equity arbitrage.
But it is not impossible. Perry Knight and his family sold their home in Tulsa, Oklahoma, last year for 35% more than they paid for in early 2017. The cycling enthusiast and blogger who gave the speculative money says a great opportunity to relocate to Fort Lauderdale, Florida, to live closer to family. “We were very surprised by the market value,” Knight says. “We didn’t think about selling until we realized we were in a very good position to do so. We had every intention of raising our family in Oklahoma at the time.” The Knights paid cash for their home in Florida and were able to settle next to their loved ones. They also set aside $ 10,000 after completing the transaction.
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