Do you have equity in your home? Many homeowners don’t even know if they do or how much.
If you have equity in your home, you may use it to consolidate debt, make home improvements, or just keep on hand. Equity goes beyond the amount you invested when you bought your home. As you make your mortgage payments and/or your home appreciates, your equity increases.
Now, learn how to determine your home equity and how to use it.
How Much Equity do you Have?
You can determine your home’s approximate value using a home valuation tool, such as Zillow. While this won’t be 100% accurate, you’ll have a ballpark estimate.
Now, find out the amount of your outstanding principal. Look at your latest mortgage statement for this number.
Subtract your outstanding principal balance from your home’s estimated value and you have your home equity.
How to Use your Home Equity
If you have equity, what should you do with it?
You have options.
You can leave it alone and let it accumulate. Knowing that you have equity provides peace of mind, just knowing your hard-earned money was put to good use.
If you need to get your hands on the funds, that’s possible too. You have a few options:
- Home equity loan – This is a fixed second mortgage on your home. It uses your home as collateral just like your first mortgage, but it takes a second lien position. You receive the funds you withdraw in one lump sum and make fixed principal and interest payments for the life of the loan (usually 10 – 20 years).
- Home equity line of credit – A HELOC works like a credit card. You receive a line of credit to draw on as you need. The HELOC also uses your home as collateral and takes a second lien position. Instead of receiving the funds in one lump sum, though, you use them as needed. Like a credit card, if you repay the funds used, you can reuse them. The draw period lasts 10 years. During this time, you must make interest-only payments on the money withdrawn. After 10 years, you go into the repayment period which lasts for 20 years and requires principal/interest payments.
- Cash-out refinance – Refinancing your first mortgage for an amount larger than what you owe may be an option too. The cash-out refinance is your home’s first lien. With a cash-out refi, you pay off your existing mortgage and take out a larger first mortgage, receiving the ‘excess’ as a lump sum.
Are you wondering about using your home’s equity? Would you like to know your options? We are happy to go over your options based on your qualifying factors and the amount of equity you have. Most loan programs allow borrowers to take up to 80 percent of their home’s value. Let us help you see how you can tap into your home’s equity and get the money you need today.
