Have you considered selling your home? If so, you might be questioning whether you made the right choice given the current mortgage rates. Some homeowners are hesitant to sell and purchase a home with a higher mortgage rate. If this concerns you as well, you should be aware that while rates are high right now, so is home equity. What you should know is as follows.
How equity develops and what it is, according to Bankrate:
“Home equity is the portion of your home that you’ve paid off and own outright. It’s the difference between what the home is worth and how much is still owed on your mortgage. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity stake grows.”
In other words, equity is the difference between the current value of your home and the balance of your mortgage.
How much equity do homeowners currently have?
You might be surprised to learn how quickly your equity has been increasing recently. In order to put the typical homeowner's wealth into perspective, CoreLogic states:
“. . . the average U.S. homeowner now has about $290,000 in equity.”
This is due to the fact that home prices have increased significantly over the past few years, which has caused your equity to grow faster than usual. Despite the market beginning to stabilize, there are still more people looking to purchase a home than there are houses that are currently on the market. Home prices have increased once more as a result of the high demand.
Nearly two-thirds (68.7%) of homeowners have either fully paid off their mortgages or have at least 50% equity, according to the Federal Housing Finance Agency (FHFA), the Census, and ATTOM, a company that provides property data (see chart below):
How Equity Helps with Your Affordability Concerns
Given the difficulties in finding affordable housing today, your equity can be very important if you decide to move. After you sell your home, you can use the equity you've accrued there to aid in the purchase of your subsequent one. This is how:
Become a cash buyer: Because you've lived in your current residence for a considerable amount of time, you may have enough equity to purchase a new home without taking out a loan. (Later, when interest rates drop, you can if you need to finance your equity to free up some cash). If so, you won't need to borrow any money or be concerned about mortgage interest rates. According to the National Association of Realtors (NAR)
“These all-cash home buyers are happily avoiding the higher mortgage interest rates . . .”
Increase your down payment: You could apply your equity to your upcoming down payment. It may even be sufficient to allow you to put down a larger sum of money and since you won't need to borrow as much money the current interest rates won't be as problematic. According to Experian:
“Increasing your down payment lowers your principal loan amount and, consequently, your loan-to-value ratio, which could lead to a lower interest rate offer from your lender.”
Bottom Line
The equity you've accrued, especially in today's market, can be very important if you're considering moving. Contact Chris Pataki to learn how much equity you have in your current home and how you can use it for your new residence.
by KCM.com
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