Smart Ways to Leverage Your Equity

If you've been a homeowner for a few years, there's an important aspect you should explore – home equity. If you're unfamiliar with the term, Freddie Mac provides the following definition:

"...the equity in your home represents the gap between its current market value and the outstanding balance on your mortgage."

That means your equity grows as you pay down your home loan over time and as appreciation of home. While it’s true home prices dipped slightly last year, they rebounded and have been climbing in many areas since then. Here’s why that price growth is good news for you.

This implies that your equity increases with the gradual repayment of your mortgage and the appreciation of home values. Despite a slight dip in home prices last year, they have rebounded and are on the rise in numerous regions. Let's explore why this growth in prices is beneficial for you.

In the most recent Equity Insights Report, Selma Hepp, who serves as the Chief Economist at CoreLogic, provides insight:

"As home prices continue to rise, contributing to the accumulation of homeowner wealth, equity has achieved a new peak, recovering losses incurred during declines in the previous year. On average, U.S. homeowners have gained over $20,000 in additional equity compared to the third quarter of 2022, with certain markets experiencing even more substantial increases as they catch up with robust price growth."

And this statistic only accounts for the past year. To provide a comprehensive perspective on how this sum can accumulate over the years, the report indicates that the average homeowner with a mortgage possesses over $300,000 in equity. Such a substantial amount of equity can wield significant influence.

Here are several instances of how you can leverage your home equity to your advantage.

1. Purchase a Home Tailored to Your Needs

If your present living arrangement no longer caters to your requirements, it could be a suitable moment to consider relocating to a larger residence. Conversely, if you find yourself with excess space, downsizing to a smaller home might be the ideal solution. In both scenarios, utilizing your equity for a down payment can help secure a property that aligns with your evolving lifestyle.

2. Reinvesting in Your Existing Home

If you're not prepared to relocate at the moment, leveraging your existing equity for home improvements is an option. However, it's crucial to weigh the long-term advantages that specific upgrades can contribute to your home's value. Consulting with a real estate agent can be invaluable in determining which projects to prioritize, ensuring the highest return on your investment when you decide to sell in the future.

3. Follow Your Personal Aspirations

Your home equity can act as a driving force to fulfill your lifelong dreams, whether it involves venturing into a new business, securing your retirement, or funding education. It's essential to use your equity judiciously, avoiding unnecessary expenses, but allocating it responsibly for significant and meaningful purposes can genuinely make a positive difference in your life.

4. Explore Your Alternatives to Prevent Foreclosure

Despite foreclosure filings staying below the usual levels, some homeowners still face this situation annually. If you find yourself in a challenging financial position, having a comprehensive grasp of your alternatives is crucial. Equity can provide a buffer in case you encounter difficulties in making timely mortgage payments.

Bottom Line

Should you seek information about the equity accumulated in your home, consider reaching out to a local real estate agent. They possess the expertise to conduct a thorough and professional equity assessment report, providing insights into the accrued equity over the years. Additionally, they can guide you through the process, elucidating the potential ways in which you can strategically utilize this equity to propel yourself towards achieving your goals. Connecting with a knowledgeable real estate professional ensures not only a precise evaluation of your home's equity but also valuable advice on leveraging it effectively to align with your aspirations.