You'll often hear homeownership referred to as a form of investment, and one of the positive sides of this theme is the common ability for homeowners who have built up equity in their home to tap into said equity for their own purposes. What are some of the reasons you might consider doing this, and how can it be done?
At Integrity First Lending, we're happy to assist clients with a wide range of mortgage loan and homeownership needs for Utah clients, including many forms of mortgage refinancing -- such as the cash-out refinance, one of the options we'll be going over during this blog. Here's a primer on the various reasons why some homeowners will look to tap into their home equity, plus some of the ways that you can go about doing so if you're looking to go down this road.
First and foremost, for those who are new to the topic, let's briefly touch on what home equity is and how it is built. Home equity refers to the portion of your home that you own outright -- i.e., the difference between your home's current appraised value and the outstanding balance on your mortgage loan. As you make mortgage payments and/or your home appreciates in value, your home equity will grow.
Since home equity is often used as collateral for second mortgages and home equity loans, it's important to know that if you default on your mortgage loan, your lender may attempt to recoup their losses by foreclosing on your home. As such, it's generally advisable to only tap into your home equity when you're confident that you can keep up with your mortgage payments, even if unforeseen circumstances arise.
Now that we've established what home equity is, let's take a look at some of the reasons why homeowners will tap into this portion of their investment. Some common reasons include:
Now that we've gone over some of the reasons why you might want to tap into your home equity, let's take a look at your practical options for doing so:
As you can see, there are a number of ways that homeowners can tap into their home equity. If you're considering doing so, be sure to speak with a mortgage loan officer to discuss your options.
How can you tell if you have enough equity in your home to qualify for a home equity loan or HELOC? There are a few different ways to calculate your home equity, but the most common method is to take your outstanding mortgage balance and subtract it from your home's current market value.
For example, let's say you own a home that's currently worth $200,000 and you have an outstanding mortgage balance of $100,000. This means you have $100,000 in home equity.
If you're interested in taking out a home equity loan or HELOC, most lenders will require that you have at least 20% equity in your home. So in the example above, you would need to have at least $40,000 in home equity to qualify.
Keep in mind that your home's market value can fluctuate over time, so it's important to stay up-to-date on your home's value if you're thinking of tapping into your equity. You can do this by speaking with a real estate agent or using an online home value estimator.
For more on home equity and how to tap into it, or for help with any of our home loan programs throughout Utah, speak to the team at Integrity First Lending today.
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