There have been a lot of headlines reporting on how homeowner
equity (the difference between the current market value of your home and
the amount you owe on your mortgage) has dramatically increased over
the past few years. CoreLogic indicated that equity increased for the average homeowner by $17,000 in the last year alone. ATTOM Data Solutions, in their latest U.S. Home Equity Report, revealed that 30.2% of the 59 million mortgaged homes in the United States have at least 50% equity. That doesn’t even include the 38% of homes that are owned free and clear, meaning they don’t have a mortgage at all. Having equity in your home can dramatically impact your life. Equity
is like a savings account you can tap into when you need cash. Like any
other savings, you should be sensible in how you use it, though. Here
are three good reasons to consider using your equity. Equity gives you options during difficult financial times. With
equity, you could refinance your house to get cash which may ease the
burden. It also puts you in a better position to talk to the bank about
restructuring your home loan until you can get back on your feet. Today, there are 2.7 million Americans who are currently in a
forbearance program because of the pandemic. Ninety percent of those in
the program have at least 10% equity. That puts them in a better
position to get a loan modification instead of facing foreclosure
because many banks will see the equity as a form of collateral in a new
deal. If you’re in this position, even if you can’t get a modification,
the equity allows you the option to sell your house and walk away with
your equity instead of losing the house and your investment in it. We’ve all heard the stories about how many great American companies
started in the founder’s garage (i.e., Disney, Hewlett Packard, Apple,
Yankee Candle, Keeping Current Matters). What we might not realize,
however, is the garage (along with the rest of the home) supplied the
start-up money for many of these companies in the form of a refinance. If you’re passionate about an idea you have for a new product or
service, the equity in your home may enable you to make that dream a
reality. It’s been a long-standing tradition in this country for many
households to help pay college expenses for their children. Some have
tapped into the equity in their homes to do that. Additionally, George Ratiu, Senior Economist for realtor.com, notes: “52% of Americans who bought their first
home in 2020 said they got help with their down payment from friends or
family. The number one lender? Their parents.” It’s safe to assume a percentage of that down payment money likely came from home equity. Savings in any form is a good thing. The forced savings you can earn
from making a mortgage payment enables you to build wealth through home
equity. That equity can come in handy in both good and more challenging
times.3 Ways Home Equity Can Have a Major Impact on Your Life
How can equity help a household?
1. You’re experiencing financial hardship (job loss, medical expenses, etc.)
2. You need money to start a new business
3. You want to invest in a loved one’s future
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