4 reasons home equity matters right now
With property values soaring in recent years, leveraging home equity has become a topic of increasing interest. Regardless of if you’re a potential seller or not, building equity has benefits for all homeowners. Understanding home equity, particularly in today’s rapidly shifting and fluctuating market, can offer several key financial benefits to homeowners and sellers alike.
First, what is it?
Home equity is the monetary difference between your home’s current market value and your mortgage’s remaining balance. It represents the portion of your property that you truly “own.”
When you buy a home and get your mortgage, most of your home’s equity belongs to the lender. Depending on your down payment, this amount could be as much as 80% to 95% (Remember, many mortgage options don’t require the “traditional 20 percent down payment,” no matter what myths you’ve heard). Your home equity grows as you continue to pay your mortgage or your home’s market value increases (Ideally, both happen simultaneously).
Why home equity matters for homeowners?
Given the surge in home values over recent years, properly understanding and leveraging home equity is more important than ever. Home equity offers several notable benefits for homeowners, including the following:
Provides a financial cushion.
Home equity is a financial cushion that can be invaluable in uncertain times. This ‘nest egg’ can be tapped into during financial, medical or other emergencies. Think of it as a solid financial safety net for you.
Gives you financial flexibility.
A large amount of home equity opens doors to various financing opportunities, like home equity loans or lines of credit. These can fund significant expenses such as home renovations, education costs or even the liquidity to purchase a second property.
Why home equity matters for home sellers?
Owning a good amount of a home outright is also good for those looking to sell their homes. That statement shouldn’t be a surprise, but here are two specifics equity in your current property could provide you.
Leads to more potential for greater profit.
As home values spike, sellers with substantial home equity stand to make considerable profits. The difference between your selling price and your remaining mortgage balance—in other words, your equity—can be substantial in a high-value market, leading to significant profit.
Gives you greater buying power.
A substantial profit from selling a home could enable the seller to afford a larger down payment on their next property, thus securing a better mortgage deal. It provides greater buying power in a competitive market, allowing sellers to upgrade to a higher-value property in the future.
Whether you’re a homeowner looking for greater financial security and opportunity, or a potential home seller looking to generate greater profit and buying power, the importance of home equity can’t be overlooked. Our teams are always here to guide you through the homebuying or selling process and are ready to provide the information and the knowledge you need to make the best decisions for you and your situation. Reach out to us today!