Many homeowners believe that selling their house is the easiest and most convenient way to access cash quickly. Tapping into your home’s equity can be a good way to get an influx of cash in hand for the things you want to do, such as paying for renovations or improving your overall standard of living, but it’s not the only way to do so. In fact, it’s important to be very cautious about it when borrowing against the roof over your head. Read on to learn what Home Equity is, how it works, and how to use it to your advantage.
What is Home Equity?
To put it in simple words, home equity is the percentage of your home that you´ve paid off. Over time, as you pay down your mortgage, and your home´s value increases, your home equity grows. As a matter of fact, for many people in America, equity from ownership is a keyway to building personal wealth over time, but you can also grow your home equity in other ways by making substantial improvements to the property that will increase the overall value of your home.
How does Home Equity work?
Once you build it up, you can use it to your advantage. One of the best options for accessing your home´s equity is a Leaseback.
A Leaseback is an innovative option that gives you the ability to sell your house, receive the cash proceeds (after paying off any existing mortgage and closing costs) and lease it back from the investor that buys it. You will be able to receive the equity after the mortgage and closing costs are deducted. With a Leaseback, you get numerous advantages most of them related to the financial side of the business:
- By selling your property and leasing it back, you get the capital and the liquidity that is tied up in your house, which means you can get access to 100% of the equity that you have in your property immediately.
- After selling and leasing back your property, you keep control of your home. Although you now have a lease agreement, you will be living in the same place, and keep the lifestyle you had before selling intact.
- By selling your property and renting it back, you are living in the same property you previously owned and you won´t have to worry about maintenance issues or any repairs that may appear in the future as they will be the new owner´s responsibility.
How to use Home Equity to your advantage?
There are no limits on how you can use your home equity, but the best ways include the following:
- Debt Consolidation: If you have a significant debt with high interest rates or are having difficulties making the payments on time, this option will make sense for you. Keep in mind that, as long as you don’t take out any additional debt, you can start to look forward to becoming debt-free very soon.
- Buy another property: Home equity can provide a viable way to access the cash you need to get a second home. But before you do so, consider all your options first, and make sure you make a wise decision.
Education expenses: Paying out student loans may be a good option to use your home equity. However, before using it to finance college or student costs, be sure to find out about their terms and interest rates. Defaulting on a student loan will hurt your credit, but you could lose your house if you default on a home equity loan.