Over the past few years, homeowners have seen substantial increases in their home's equity. At the beginning of 2023, the average homeowner had $270k in equity – close to a 30% increase since 2019, according to CoreLogic. Equity is determined by the current appraised value of a property minus what is owed on the mortgage. Homeowners tap into home equity for everything from property improvements to medical bills.
There are a variety of ways to access the equity you've built up in your property. The four most common methods include a cash-out, loan, line of credit or an agreement.
Often referred to as a second mortgage, it is paid back monthly over 10-30 years (plus interest).
Commonly known as a HELOC, borrowers have a line of credit from which they can withdraw money as needed – similar to a credit card.
With a refi, a borrower replaces their existing mortgage with a new one. The amount is based on the current value of the home. The owner receives the difference between the amount of the original mortgage and the new mortgage in cash.
The HEA option allows homeowners to receive a lump sum in exchange for granting an investor a percentage of the home’s equity. There is no interest accrual or monthly payments, but the money is due on sale.
For example, an investor buys 10% of a $250k property for $25k (which goes to the homeowner). Ten years later, the homeowner sells the property for $300k. The investor is paid back the $25k and is entitled to 10% of the $50k increase ($5k).
The more earnest money that the buyer deposits indicates to the seller a higher level of commitment.
Real estate investment is a long game, but can reap many benefits.
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Mike offers years of proven experience successfully helping clients, buy, sell and invest in Lake Country Real Estate.