How to Get Equity Out of Your Home: 5 Solutions

When it comes to financing your home, one size doesn’t fit all. And while traditional options like loans, home equity lines of credit (HELOCS), refinancing, and reverse mortgages can work well for some homeowners, the recent rise of loan alternatives like home equity investors and other emerging platforms have made it clear that there’s a growing demand for other choices. Learn more about alternative ways to get equity out of your home, so you can make a more informed decision.

Traditional Options: Pros and Cons

Loans, HELOCs, refinancing, and reverse mortgages can all be attractive ways to tap into the equity you’ve built up in your home. However, there are often as many disadvantages as there are benefits — so it’s important to understand the pros and cons of each to understand why some homeowners are seeking financing alternatives. See the chart below to quickly compare loan options, then read on for more details on each.

Home Equity Loans

A home equity loan is one of the most popular ways that homeowners access their equity. There are certainly advantages, including a predictable monthly payment due to the loan’s fixed interest rate, and the fact that you’ll receive the equity in one lump sum payment. For this reason, a home equity loan typically makes sense if you’re looking to cover the cost of a renovation project or large one-off expense. Plus, your interest payments may be tax-deductible if you’re using the money for home improvements.

Why search for a home equity loan alternative? A few reasons: First, you’ll need to pay off the loan in addition to your regular mortgage payments. And if your credit is less-than-excellent (under 680), you may not even be approved for a home equity loan. Finally, the application process can be invasive, cumbersome, and taxing.

Home Equity Lines of Credit (HELOC)

HELOCs, a common alternative to a home equity loan, offer quick and easy access to funds any time you need them. And while you typically need a minimum credit score of 680 to qualify for a HELOC, it can actually help you improve your score over time. What’s more, you might be able to enjoy tax benefits — deductions up to $100,000. Since it’s a credit line, there’s no interest due unless you take out money, and you can take out as much as you want until you hit your limit.

But with this flexibility comes the potential for additional debt. For example, if you plan to use it to pay off credit cards that have high interest rates, you can wind up racking up more charges. This actually occurs so frequently that it’s known to lenders as “reloading.”

Another major downside that may encourage homeowners to seek a HELOC alternative is the instability and unpredictability that comes along with this option, as the variability in rates can lead to fluctuating bills. Your lender can also freeze your HELOC at any time — or reduce your credit limit — in the event of a drop in your credit score or home value.

Discover how common it is for homeowners like you to apply for home loans and HELOCs, in our 2021 Homeowner Report.

Cash-out Refinance

One alternative to a home equity loan is a cash-out refinance. One of the biggest perks of a cash-out refinance is that you can secure a lower interest rate on your mortgage, which means lower monthly payments and more cash to pay for other expenses. Or, if you’re able to make higher payments, a refinance might be a good way to shorten your mortgage.

Of course, refinancing has its own set of challenges. Since you’re essentially paying off your current mortgage with a new one, you’re extending your mortgage timeline and you’re saddled with the same charges you dealt with the first time around: application, closing, and origination fees, title insurance, and possibly an appraisal.

Overall, you can expect to shell out between two and six percent of the total amount you borrow, depending on the specific lender. Even so-called “no-cost” refinances can be deceptive, as you’ll likely have a higher rate to compensate. If the amount you’re borrowing is greater than 80% of your home’s value, you’ll likely need to pay for private mortgage insurance (PMI).

Clearing the hurdles of application and qualification can lead to dead ends for many homeowners who have blemishes on their credit score or whose scores simply aren’t high enough; most lenders require a credit score of at least 620. These are just some of the reasons homeowners may find themselves seeking an alternative to a cash-out refinance.

Reverse Mortgage

With no monthly payments, a reverse mortgage can be ideal for older homeowners looking for extra cash during retirement; a recent estimate from the National Reverse Mortgage Lenders Association found that senior citizens had $7.54 trillion tied up in real estate equity. However, you’re still responsible for the payment of insurance and taxes, and need to stay in the home for the life of the loan. Reverse mortgages also have an age requirement of 62+, which rules it out as a viable option for many.

There’s a lot to consider when looking at traditional and alternative ways to access your home equity. The following guide can help you navigate each option even further.

Looking for an Alternative? Enter the Home Equity Investment

A newer alternative to home equity loans is home equity investments. The benefits of a home equity investment, like Hometap offers, or a shared appreciation agreement, are numerous. These investors give you near-immediate access to the equity you’ve built in your home in exchange for a share of its future value. At the end of the investment’s effective period (which depends on the company), you settle the investment by buying it out with savings, refinancing, or selling your home.

With Hometap, in addition to an easy and seamless application process and unique qualification criteria that is often more inclusive than that of lenders, you’ll have one point of contact throughout the investment experience. Perhaps the most important difference is that unlike these more traditional avenues, there are no monthly payments or interest to worry about on top of your mortgage payments, so you can reach your financial goals faster. If you’re seeking alternative ways to get equity out of your home, working with a home equity investor might be worth exploring.

Is a Hometap Investment the right home equity loan alternative for you and your property? Take our five-minute quiz to find out.

YOU SHOULD KNOW

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

January 21, 2021June 23, 2022

North Carolina Housing Market Is Growing, But So Are Costs

The laid-back lifestyle and mild climate of North Carolina are big draws for homebuyers, along with low taxes, opportunities for outdoor pursuits like hiking and rafting, a solid brewery scene, and college sports galore. And the state’s popularity only continues to grow among all age groups.

Recently, Charlotte snagged the number-six spot on the U.S. News & World Report’s 2020-2021 Best Places to Live list—an index that ranks cities on their value, desirability, job market, and quality of life—and Raleigh-Durham came in at 11. Both are also part of a group of “18-hour cities” in which the downtown areas are bustling beyond the typical workday hours, and these locations are increasingly popular with millennials.

Not only that, but the two locales are considered prime picks for retirees, along with Asheville. Plus, Raleigh has gained attention in recent years for a boom in technology jobs, garnering the nickname “the Bay Area of the East Coast.”

Compared to 2019, housing prices are up nearly 11% in Charlotte and 14% in Raleigh, respectively. The demand is also high, with homes only staying on the market for an average of six days as opposed to 11 last year. This may be partly because buyers get so much bang for their buck: at the end of August 2020, the median home value statewide was $214,726, a six percent increase year over year, but still well below the national median home price of $310,600.

Unlike more densely-populated urban regions like New York and San Francisco where the COVID-19 pandemic has prompted residents to seek areas with more space, the generally suburban landscape of North Carolina means that the housing market has remained relatively stable throughout the crisis.

“Everyone’s trying to get to a city that is a little more spread out, but yet offers some of those same things as those more populated cities,” real estate agent Laura Peed explained to WTVD, noting that both local and out-of-state buyers are competing for properties.

The construction industry is responding in kind. According to a recent survey of the 80 largest markets in the nation, Raleigh-Durham was ranked number one and Charlotte was ranked number 11 for expected construction growth in 2021.

Everyday Expenses Add Up

Yet, for residents, the rising costs of day-to-day life still prove to be a challenge. In Wake County, which includes Raleigh-Durham, housing prices have increased 1.7 times more than incomes in the past five years, and 66% of Charlotte homeowners reported that housing costs were rising more rapidly than their incomes. Also in Charlotte, a whopping 85% felt that home maintenance costs were moderately to extremely stressful.

“When their housing eats so much of their income, they have to do without in other areas,” Kathryn Sabbeth, a UNC-Chapel Hill housing law professor told The Herald. “If you’re spending 50 or higher percent of your income on housing, you have less money left over for clothing, food, school supplies.”

Fortunately, working with a home equity investor like Hometap can help North Carolina homeowners access the equity they’ve built in their homes and pay for necessary expenses without having to sell their house.

Find out if a Hometap Investment can help you pay off debts, accomplish financial goals, and live a more enjoyable and less stressful life in your North Carolina home.

Take our five-minute quiz to see if a Hometap Investment might be a good fit for you.

YOU SHOULD KNOW

January 19, 2021January 25, 2021

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January 13, 2021June 23, 2022

Limited Inventory Causes Home Prices to Heat Up in Arizona

Sunny weather and a laid-back lifestyle combine in Arizona to make it appealing to potential homebuyers of all ages. The state is home to some of the most beautiful places in the U.S., including the Grand Canyon, Horseshoe Bend, and Petrified Forest National Park. It’s also a golfer’s paradise, with more than 300 courses, and has long been a top pick for retirees looking for a spot to spend their golden years (or at least their winters).

Arizona State University and the University of Arizona bring in students from across the country, and recent remote work programs have led to an influx of young professionals as well. Plus, the state’s tax structure — which includes low property taxes and no business inventory or manufacturing equipment taxes — also draws transplants for both personal and business reasons.

Phoenix Home Prices on the Rise

Currently, the median home price in the state is $303,230, an increase of 13.7% in the past year. In the capital of Phoenix, home prices are increasing faster than in any other city in the country, with a 9.9% jump from August 2019 to August 2020. As of July 2020, the median home price in the area reached a record high of $315,000.

Experts are forecasting continued growth in the market here, and the city landed in sixth place on a list of the top 10 housing markets for 2021. As a result, there’s a massive demand for new construction, as reflected by the 25% surge in permit pulls year over year. Nearby upscale Gilbert also took fifth place in a recent WalletHub ranking of the best real estate markets in the country. As of July 2020, the median home sale price was $349,250, up 10.7% from May of 2019.

So Many Buyers, So Little Inventory

Like much of the country, however, Arizona homebuyers are challenged by high demand and lack of supply; a situation which has intensified with COVID-19. According to the Tucson Association of Realtors, there were nearly 47% fewer homes listed in June of 2020 than the same month in the previous year.

“The pandemic has created a very dramatic situation where there’s very little inventory compared to the amount of buyers out there,” Kevin Kaplan, Vice President of Marketing and Technology at Long Realty, told Inside Tucson Business. “We’re seeing people not take vacations and instead take some of those dollars and buy a second home or a vacation home and potentially working out of them for long periods of time,” he added.

Read “3 Questions to Ask before Investing in a Vacation Home”

In Tucson specifically, homebuyers can get a bit more bang for their buck, as the median price for new homes is $307,558 and median price of existing homes is $250,538, up from $236,000 in 2019.

A Rush to Refinance

And while recent low interest rates have been spurring a flurry of activity within the market, particularly when it comes to refinancing, it’s wise for homeowners to think long term about their goals before jumping into action, according to Prime Lending Senior Loan Officer Matthew Thorne.

“There’s a lot of different things that they want to make sure that they’re looking at and not just kind of drawing to the flame of interest rate and that’s it,” he told 12 News. “You know, what is the term, what are your goals, what are the costs?”

If you’re a current Arizona homeowner, it’s worthwhile to explore other options for making the most of your home’s value before choosing to refinance or sell. A home equity investment allows you to tap into your equity without worrying about having to pay interest or monthly payments.

Take our five-minute quiz to see if a Hometap Investment might be a good fit for you.

DISCLAIMER

January 11, 2021February 3, 2021

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January 6, 2021August 4, 2022

Florida homeowner renovates home, eliminates debt with home equity

Brenda Chose Hometap to Help Her Tackle Home Repairs and Eliminate Debt

For Brenda, being debt free felt like an impossibility. She’d been making double payments on credit cards and putting expenses on hold for what felt like forever, and it still didn’t seem to close the gap.

When she decided her to-do list had been on hold for too long, she began researching ways to eliminate her debt for good. As she began looking into home renovation loans, lines of credit, and reverse mortgages online, she came across home equity investments, and started comparing her options.

“Hometap offered more cash up front, which was important to me,” said Brenda, “I could also tell exactly what was expected of me. With a home improvement loan, you don’t feel like you get a fair appraisal. They want to keep the money low and the interest high. The payments would have been more than what I’ll settle [my investment] for.

“I wouldn’t have been able to do one-tenth of what I’ve done with a reverse mortgage. I would encourage anybody that’s looking at a reverse mortgage to consider a Hometap Investment. A reverse mortgage is not geared toward the homeowner at all. This is.”

After requesting an Investment Estimate, Brenda was matched with her Investment Manager, who reaffirmed that an Investment was the choice for her.

“That right there sold me,” says Brenda. “He answered every question, it didn’t matter what time of day it was. I’ve never experienced such customer service. I can tell when someone is sincere, even over the phone; he believes in this. I never felt pushed, I never felt pressured. It was just, ‘here are the facts.’”

After a seamless appraisal process and signing, Brenda had her funds in-hand, and the real work began. She set her sights on her debts and her beloved Jacksonville, Florida home.

She had a French drain installed to fix a water drainage issue, added new carpet, replaced hardware in her windows, fixed a leak on her back porch, had some landscaping done, and painted the trim around the outside of the house. Then she paid off all of her outstanding debt, traded in her old vehicle for one that’s more reliable, and added some cushion to her emergency fund so that the next repair that crops up doesn’t put her back in debt.

“My credit went from 640 to 779,” says Brenda. “I’m completely out of debt, it’s an amazing feeling. It’s something I’ve been working toward for a long time.”

For now, the plan is to sell the home in the future and settle the Investment with a portion of the home sale, but Brenda says that could change.

“I don’t feel like I owe Hometap. We’re partners. As partners, we’ll decide what’s best. I feel like I have someone to talk to when it comes time to make a decision. Most of the time when you deal with someone, once the deal is done, they’re gone and they could care less. But [Hometap] is in constant contact, it’s refreshing. It’s weird, but I feel like I know [my Investment Manager]. I feel like he’s a friend.”

Brenda still has some home repairs on her list, but she’s enjoying being free of debt in the meantime.

January 1, 2021January 25, 2022

Most Millennial Homeowners Don’t Know This Key Figure

Owning a home can be a more expensive prospect than renting one. That’s because homeowners are responsible for numerous costs, from mortgage payments to property taxes to insurance premiums.

But there’s a benefit to owning a home, and it’s the chance to build equity in an asset — one that has the potential to gain value over time. However, most millennial homeowners don’t know how much equity they have in their home, according to a recent Hometap report.

Specifically, only about 47% of millennial homeowners can pinpoint that figure, compared to around 54% of Generation X and 69% of baby boomers. But no matter your generation, that’s a number you really should be aware of.

This article originally appeared on Nasdaq.com. Read the full article here.