U.S. home prices are as high as ever – and the market shows no signs of cooling. According to a report from the Zillow real estate market, the average house price in 46 of the 50 largest metro areas in the country increased by more than 10% in May compared to last year. Home prices have increased by more than 13% on average since last year. In June, the median home price in the United States was $ 385,000, compared to $ 342,000 in June 2020.
All of this can be hard news for homebuyers – but millions of homeowners across the United States are taking advantage of unprecedented home prices. And there are many ways they can benefit from their home equity, including home equity loans, mortgages and cash repayments. But most important is the question of how best to take advantage of that equality. In addition to outlining some of my activities below, I interviewed homeowners from all over the United States to explore different ways you can take advantage of your home equity.
Renovate or remodel
Adding value to your home does not require a sale. If you are planning to stay, using your equity for home improvement is a great way to make your space more affordable – and increase your repurchase value.
In 2009, web designer and blogger Will Creech bought his mid-century 1956 home in Charlotte, North Carolina. “At the time, it was a little over $ 270,000, but now it is over $ 500,000,” he said. Creech and his wife have invested most of their equity in renovating the home, and although they have discussed moving or adding to future modernization, Creech is generally content to stay where they are. “If prices continue to rise, I personally would like to do something,” he said.
Some renovation projects can add value to your home. According to the Homelight study, remodeling or installing wooden floors, focusing on the appeal of the block and replacing an old roof has the highest return on investment. And, depending on the projects you choose, part of your debt may be tax deductible. See the eligible IRS guide for deductions here.
Build a new home
I was one of the millions of people who entered their home equity last year using a cash repayment loan. Some have used cash to create instant cash or pay bills. Others have used it to fund home renovations, as opportunities for out-of-home spending have been reduced. But I was keeping an eye on retirement.
When I moved to Seattle in 2012, I was shocked by the already valuable real estate market and the competition. My husband and I have jointly scrapped a 20% discount on an out-of-town art house discount and watched over the next nine years as home prices doubled – then tripled – in our state.
We repaid our original loan at a lower interest rate and discarded the $ 500 monthly payment. The cash re-investment added $ 400 to our monthly payment. Finally, we are now paying less than $ 100 a month to maintain our mortgage and vacation home in Chelan, Washington, where we will be living after my retirement.
Get better mortgage terms
If upgrading has expanded your home equity by more than 20%, now might be a good time to re-invest. Higher mortgages along with lower interest rates can open the door to new loan options: You can shorten your loan period, cancel your monthly payments or cancel your private mortgage insurance – a policy you need to own less than 20% of your home equity.
Jacqueline Sanchez has implemented several of these steps. Real estate investor and co-owner Invested Wallet, a privately held financial network, bought her home in Omaha, Nebraska, for $ 209,000 in 2015 – and its value has continued since then. “According to Zillow, my house was $ 306,000,” she said. “With rising prices, I have reinvested to get rid of mortgage insurance and reduced the debt period by five years.”
Buy an investment property
Becoming an owner is a great way to earn indirect income. If you have built equity in your primary home, you can turn to part of buying a rental property.
Tawnya Redding bought her first home in a suburb of Portland, Oregon, in 2015. “I worked hard to repay my mortgage before the schedule,” the private finance blogger says. “That, coupled with the sharp increase in housing prices in the area, sits at more than $ 250,000 in equity.” Redding plans to issue a home equity loan, or HELOC, when the time is right. “My plan is to continue saving, building equity and preparing for when and if the market goes down or overturns,” she said.
Pay for college
The college is already expensive, and the cost of a four-year degree is expected to cost around $ 200,000 by 2036, according to Vanguard. You can use the growing equity at home to help cover future tuition costs.
That is Alexander Lowry’s plan. “We bought our house in Hamilton, Massachusetts, when I moved into the area to study,” says a Gordon College professor and father of two. “We tied it up in February 2018 to $ 560,000. Our house is currently valued at over $ 700,000. I see the price increase as an opportunity to pay for college.”
Lowry children are now toddlers. But he plans to sell the house when they are near college age. But that is one way when it comes to the use of equity paid for education – you can also use a cash rebate or HELOC. You can deposit your taxable income into a 529 college savings plan or Roth IRA.
Sell your home and move
The best way to earn cash for your equity is to sell your home and put the proceeds into a new home discount. According to the National Association of Realtors, 6.5 million Americans sold their assets last year – the highest number since 2006. When you sell, however, you will need a new place to live, which can lead to a big challenge. As we mentioned in our friendly article that outlines ways to take advantage of home equity, prices are high everywhere, competition is fierce and it is becoming increasingly difficult to get a home arbitration opportunity.
But it is not possible. Perry Knight and his family sold their home in Tulsa, Oklahoma, last year for 35% more than they paid in early 2017. Bicycle enthusiast and blogger say the financial storm has provided a great opportunity for them to move to Fort Lauderdale, Florida, for the family. near. “The market price was a surprise to us,” Knight said. “I didn’t think about selling until we found out we were in a very good place. We had all the motives to raise our family in Oklahoma at that time.” The Knights paid cash for their Florida home and were able to live close to their relatives. They also managed to save $ 10,000 after completing the transfer.
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