Equity is a valuable resource that many homeowners don’t know about or don’t know how to utilize. You’ve likely heard about people using equity to buy a new property, invest in a startup, or even pay for their kids to go to college. But home equity can be used in many ways that you might find beneficial.
Of course, to truly utilize equity, you must first understand it. What is equity, how can you get it, and how can you use it to benefit you and your family? Let’s take a closer look.
What is Home Equity?
Home equity is based on the percentage of your home’s value that you own. It’s determined by subtracting the amount you owe on your mortgage from the current value of your home. To put it in math terms, here’s the equation:
Home Value – Mortgage Balance Owed = Your Home Equity
For example, let’s say you’re mortgaging a home in St. Augustine, Florida. That home is currently valued at $350,000, but you still owe $150,000 on your mortgage. That would mean you have $200,000 in equity.
How to Build Equity
There are two basic ways for equity to increase. First, you gain equity every time you pay your mortgage. So, just by making your payments on time, you’re building equity.
The second way is based on the appreciating value of your home. For example, if you purchased a home at $250,000, and it is now worth $300,000 based on renovations and market trends, then you’ve gained $50,000 in equity. It’s that simple.
Of course, knowing how much equity you have in your home is one thing. But knowing how to use it is something entirely different. Here are four ways to use your equity to benefit you and your family.
4 Ways to Use Equity Now
1. Buy Your Dream Home
You can’t discount the value of suddenly gaining access to a large sum of money. If you’re struggling with your current space or just wanting something new, you should consider using home equity to purchase your dream home. Simply sell your existing property and utilize the return to put a hefty down payment on something new.
If you want to save money, instead, you could also use your equity to purchase a less expensive home that requires less upkeep. Whether you want to downsize or level up, use your home equity to benefit you.
2. Start a New Business
Are you interested in starting a business or investing in a startup but don’t have excess capital just lying around? Those early years in business can be rough, so significant investments are almost required to succeed. Use your equity to give your new venture the startup capital it needs.
In this situation, you probably won’t want to sell your home to gain access to your home equity. Instead, you’ll want to get a home equity loan, a home equity line of credit, or a cash-out refinance. All these methods allow you to essentially pull the equity out of your home and use it somewhere else without selling your property.
3. Invest in Education
Similar to investing in a business, you can also invest in education. College is expensive, and financial aid, scholarships, and loans can’t always pay for everything. If you, your spouse, or your children plan to go to college, you can use your home equity to cover those expenses.
4. Fund Your Retirement
And if you’re nearing retirement, you can also use your home equity to invest in a comfortable future. Accessing your equity could enable you to remodel your home or give you the ability to travel the world.
You can do this by borrowing against your equity (like we discussed above) or getting something called a “reverse mortgage.” A reverse mortgage enables you to stop paying your mortgage in return for monthly or lumpsum payments equal to your home equity.
Do you want to use your home equity to buy a home in Jacksonville or anywhere in Northeast Florida? Contact the Welch Team today! Our team of real estate experts would be happy to help you find your dream home.