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Take Advantage of Your Home Equity: A Homeowner’s Guide



Home-ownership offers many advantages over renting, including a stable living environment, predictable monthly payments, and the freedom to make modifications. Neighborhoods with high rates of home-ownership have less crime and more civic engagement. Additionally, studies show that homeowners are happier and healthier than renters, and their children do better in school.1



But one of the biggest perks of home-ownership is the opportunity to build wealth over time. Researchers at the Urban Institute found that home-ownership is financially beneficial for most families,2 and a recent study showed that the median net worth of homeowners can be up to 80 times greater than that of renters in some areas.3



So how does purchasing a home help you build wealth? And what steps should you take to maximize the potential of your investment? Find out how to harness the power of home equity for a secure financial future.



WHAT IS HOME EQUITY?

Home equity is the difference between what your home is worth and the amount you owe on your mortgage. So, for example, if your home would currently sell for $250,000, and the remaining balance on your mortgage is $200,000, then you have $50,000 in home equity.

$250,000 (Home’s Market Value)


– $200,000 (Mortgage Balance)


______________________________


$50,000 (Home Equity)


The equity in your home is considered a non-liquid asset. It’s your money; but rather than sitting in a bank account, it’s providing you with a place to live. And when you factor in the potential of appreciation, an investment in real estate will likely offer a better return than any savings account available today.


 


HOW DOES HOME EQUITY BUILD WEALTH?


A mortgage payment is a type of “forced savings” for home buyers. When you make a mortgage payment each month, a portion of the money goes towards interest on your loan, and the remaining part goes towards paying off your principal, or loan balance. That means the amount of money you owe the bank is reduced every month. As your loan balance goes down, your home equity goes up.


Additionally, unlike other assets that you borrow money to purchase, the value of your home generally increases, or appreciates, over time. For example, when you pay off your car loan after five or seven years, you will own it outright. But if you try to sell it, the car will be worth much less than when you bought it. However, when you purchase a home, its value typically rises over time. So when you sell it, not only will you have grown your equity through your monthly mortgage payments, but in most cases, your home’s market value will be higher than what you originally paid. And even if you only put down 10% at the time of purchase—or pay off just a small portion of your mortgage—you get to keep 100% of the property’s appreciated value. That’s the wealth-building power of real estate.


 


WHAT CAN I DO TO GROW MY HOME’S EQUITY FASTER?


Now that you understand the benefits of building equity, you may wonder how you can speed up your rate of growth. There are two basic ways to increase the equity in your home:




  • Pay down your mortgage.



We shared earlier that your home’s equity goes up as your mortgage balance goes down. So paying down your mortgage is one way to increase the equity in your home.


Some homeowners do this by adding a little extra to their payment each month, making one additional mortgage payment per year, or making a lump-sum payment when extra money becomes available—like an annual bonus, gift, or inheritance.


Before making any extra payments, however, be sure to check with your mortgage lender about the specific terms of your loan. Some mortgages have prepayment penalties. And it’s important to ensure that if you do make additional payments, the money will be applied to your loan principal.


Another option to pay off your mortgage faster is to decrease your amortization period. For example, if you can afford the larger monthly payments, you might consider refinancing from a 30-year or 25-year mortgage to a 15-year mortgage. Not only will you grow your home equity faster, but you could also save a bundle in interest over the life of your loan.




  • Raise your home’s market value.



Boosting the market value of your property is another way to grow your home equity. While many factors that contribute to your property’s appreciation are out of your control (e.g. demographic trends or the strength of the economy) there are things you can do to increase what it’s worth.


For example, many homeowners enjoy do-it-yourself projects that can add value at a relatively low cost. Others choose to invest in larger, strategic upgrades. Keep in mind, you won’t necessarily get back every dollar you invest in your home. In fact, according to Remodeling Magazine’s latest Cost vs. Value Report, the remodeling project with the highest return on investment is a garage door replacement, which costs about $3600 and is expected to recoup 97.5% at resale. In contrast, an upscale kitchen remodel—which can cost around $130,000—averages less than a 60% return on investment.4


Of course, keeping up with routine maintenance is the most important thing you can do to protect your property’s value. Neglecting to maintain your home’s structure and systems could have a negative impact on its value—therefore reducing your home equity. So be sure to stay on top of recommended maintenance and repairs.


 


HOW DO I ACCESS MY HOME EQUITY IF I NEED IT?


When you put your money into a checking or savings account, it’s easy to make a withdrawal when needed. However, tapping into your home equity is a little more complicated.


The primary way homeowners access their equity is by selling their home. Many sellers will use their equity as a down payment on a new home. Or some homeowners may choose to downsize and use the equity to supplement their income or retirement savings.


But what if you want to access the equity in your home while you’re still living in it? Maybe you want to finance a home renovation, consolidate debt, or pay for college. To do that, you will need to take out a loan using your home equity as collateral. 


There are several ways to borrow against your home equity, depending on your needs and qualifications:5




  • Second Mortgage – A second mortgage, also known as a home equity loan, is structured similar to a primary mortgage. You borrow a lump-sum amount, which you are responsible for paying back—with interest—over a set period of time. Most second mortgages have a fixed interest rate and provide the borrower with a predictable monthly payment. Keep in mind, if you take out a home equity loan, you will be making monthly payments on both your primary and secondary mortgages, so budget accordingly.

  • Cash-Out Refinance – With a cash-out refinance, you refinance your primary mortgage for a higher amount than you currently owe. Then you pay off your original mortgage and keep the difference as cash. This option may be preferable to a second mortgage if you have a high interest rate on your current mortgage or prefer to make just one payment per month.


  • Home Equity Line of Credit (HELOC) – A home equity line of credit, or HELOC, is a revolving line of credit, similar to a credit card. It allows you to draw out money as you need it instead of taking out a lump sum all at once. A HELOC may come with a checkbook or debit card to enable easy access to funds. You will only need to make payments on the amount of money that has been drawn. Similar to a credit card, the interest rate on a HELOC is variable, so your payment each month could change depending on how much you borrow and how interest rates fluctuate.

  • Reverse Mortgage – A reverse mortgage enables qualifying seniors to borrow against the equity in their home to supplement their retirement funds. In most cases, the loan (plus interest) doesn’t need to be repaid until the homeowners sell, move, or are deceased.6



Tapping into your home equity may be a good option for some homeowners, but it’s important to do your research first. In some cases, another type of loan or financing method may offer a lower interest rate or better terms to fit your needs. And it’s important to remember that defaulting on a home equity loan could result in foreclosure. Ask us for a referral to a lender or financial adviser to find out if a home equity loan is right for you.


WE’RE HERE TO HELP YOU


Wherever you are in the equity-growing process, we can help. We work with buyers to find the perfect home to begin their wealth-building journey. We also offer free assistance to existing homeowners who want to know their home’s current market value to refinance or secure a home equity loan. And when you’re ready to sell, we can help you get top dollar to maximize your equity stake. Contact us today to schedule a complimentary consultation!


The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.


Sources:



 






 




 




Top 10 Most Expensive Mistakes You’re Making on Your Home




 RIS Media's Housecall  https://blog.rismedia.com   By Cary Teller 



 

 


 Editor's Note: This post was originally published on October 25, 2016. Housecall continues to share this piece due to ongoing requests and reader interest.



Homes cost a lot of money to maintain. But are you spending extra money unnecessarily on upkeep? Here are the 10 most expensive mistakes you could be making in your home.


1. Using Traditional Light bulbs


If you still have incandescent light bulbs in your home, you could be throwing a lot of money away every month on inflated electric bills. Over its life span, an incandescent bulb can use $180 worth of electricity. A CFL will only use $41 worth of electricity over the same time period. Even better is the LED bulb, which only uses $30 per bulb. Think what replacing every light bulb in your home could do to your home's bottom line.


2. Ignoring a Leaky Faucet


A leaky faucet that drips one drop per second can waste more than 3,000 gallons per year, which is enough water to take more than 180 showers. Some of us live in areas where water is plentiful, but for those of us in areas plagued with drought, this could be costing you a fortune. Fix or replace your leaky faucet and save a ton on your water bill.


3. Using the Wrong Air Filter Size


We all sometimes forget to change out the air filters for our HVAC systems or accidentally buy the wrong size. But using the wrong filter or a dirty filter can increase your power bill and cause expensive problems for your furnace down the road. Use the correct filters for your system, and set a reminder to change them after the recommended amount of time. You won't regret it.


4. Not Customizing Temperature


Invest in a customizable thermostat. If you're away at the office all day, you can program your heater to shift down a few degrees while you're gone and then shift back up shortly before you return home. Heating or cooling an empty home wastes a lot of money in energy costs.


5. Not Adjusting Air Vents Properly


Is one room in your home hot, while the others are cold? Oftentimes homeowners will crank up the air conditioning in the whole house to combat hot temperatures in one area. Instead, adjust air vents to direct the flow of air more evenly throughout your entire home. Professionals will come regulate this to ensure that your entire home is receiving the same amount of air conditioning or heating.


6. Over Watering Lawn


Many homeowners have their sprinkler systems programmed to come on in the early morning hours for optimum lawn health. This can become a problem, however, if you're never around to see what you're actually watering. A broken sprinkler head could be causing a fountain, or the trajectory of your sprinkler may be directed at a fence instead of your lawn. Periodically run your sprinklers during the day so you can see how they are performing when you're not around.


7. Water Heater Temperature Set Too High


Unless you have a tankless water heater, your water heater is keeping the water in its tank hot 24/7. If you don't keep an eye on the temperature as each season changes, you may be paying too much to heat your water. Decrease the temperature in the summer, and bump it back up when winter comes.


8. Leaky Windows and Doors


Leaky windows and doors are great places for cold, winter winds to enter your home. Many homeowners simply ignore them and crank up their heaters. Caulk leaky windows and put rubber seal around doors to keep winter winds out and warmth in.


9. Paying a Handyman


Don't pay a handyman for a job that is simple enough to do yourself. If you're unsure of how to do something, look up video tutorials online. Doing simple tasks yourself can save you a lot of money.


10. Ignoring Curled Shingles


It may be easy to ignore problems on your roof, but it will only lead to bigger problems later. If you see any possible issues with your roof, repair them as soon as possible, as this will save you significant costs later.


Use these 10 tips to cut maintenance costs on your home today.


 




Things seem to be getting smarter and smarter these days. From smartphones to smart pressure cookers, anything that can be built with a brain or an internet connection seems to be being bulked up. Some items that are getting brains don’t necessarily make a lot of sense (smart toothbrushes?), and others seem like they should have gotten smarter sooner.  Smart cameras are a perfect example of the latter. They’re a good balance between smart and sexy, and they will keep your smart home safer.


Getting to Know Smart Cameras


A smart camera is different from a regular home security camera in that one camera can integrate with lots of sensors in your home and actually learn your behavior. So, if you normally disarm the alarm at 8:00 am and rearm it at 4:00 pm, that camera will begin to build that information into its profile of your household.


This way, when someone comes in at 8:00 pm and tries to disarm the alarm, even if they’re successful, the camera will be on alert for more clues about who this person is and if they belong in your home. You’ll be notified through an app in your phone that someone is lurking about. Some smart cameras, like the Nest Cam IQ are even able to learn faces and distinguish friends you designate from strangers. When a stranger appears in this camera’s sight, it notifies you right away. If it’s simply a friend stopping by to see if you’re home, you can ask the Nest IQ to essentially ignore their activity.




Benefits of Modern Smart Security Cameras 



Security cameras have been in homes for decades now, but today’s security cameras bear very little resemblance to their ancestors. Although they share functionality, that’s about all they have in common today. Here are a few things to keep in mind about modern smart cameras: 


They’re tiny, with great big brains. As mentioned above, some smart cameras learn patterns of behavior, others go further and learn faces and names. All of this is made possible by modern computing and it’s stuffed into a tiny little package that’s hardly noticeable.


Minimal wiring is required. Old school security cameras required you to run new wiring from them to the television and recording device you were utilizing. Assuming the place you’re stashing the camera already has power, that’s still a lot of extra cabling to deal with. Smart cameras connect to your devices using WiFi, though they may need a wire for power.


Monitoring is DIY. Gone are the days of paying a company to do your monitoring or having way too much space in your house devoted to self-monitoring of those big ancient cameras. Now, you can monitor your camera in real time, no matter where you are. It’s a snap to just drop in and see how things are going in your vacation home or review videos from last night to see if your kids threw a house party while you were away.


Video storage is in The Cloud. The one drawback to smart cameras is that you will have to pay for storage for your recordings if you want to keep them. Most companies offer packages by time spans that range from about 24 hours to weeks and weeks. You can download your videos, but what you don’t download will disappear after the length of your storage subscription.


 Smart cameras are really one of the best things since sliced bread. They can keep your home and family safe, even when you’re far away.


 






The 9 Step System To Get Your Home Sold Fast and For Top Dollar 


Buyers are far more discriminating now than in the past, and a large percentage of the homes listed for sale never sell. It's more critical than ever to learn what you need to know to avoid costly seller mistakes in order to sell your home fast and for the most amount of money.    More...





 




 



 


 


 


  


It’s a common misconception that you shouldn’t try to buy or sell a home during the fall and winter months.


This is generally considered the “off-season” in real estate. Many sellers mistakenly believe that the cold weather will keep buyers away and that no one is looking over the holidays. Unfortunately, many real estate professionals perpetuate this myth by advising their clients to “wait until the spring” to list their home.


The truth is, homes are bought and sold year round. And while the market is typically quieter during the fall and winter, savvy buyers and sellers know how to use this slow down to their advantage. In fact, depending on your circumstances, now may be the ideal time for you to purchase or list a home.


If you’re in the market to buy or sell, there’s no need to wait for the spring. Read on to discover the top five reasons that it can pay to buy or sell a home during the off-season!



1. LESS COMPETITION


What’s the number one reason to buy or sell a home during the off-season? Less competition!


This can be particularly beneficial if you’re a seller. Come spring, a huge wave of new listings will hit the market. But if you list now, you will have fewer comparable homes with which to compete.


In the spring and summer months, it can be difficult for your property to stand out in a crowded market. You may end up with a surplus of homes for sale in your neighborhood. Indeed, it’s not uncommon to see multiple listings on a single street during the peak selling season.


Inventory in the fall and winter months, however, can be significantly lower. That means your home will not only receive more attention from buyers, but you may also gain the upper hand in your negotiations. In fact, research found that homes listed in the winter are nine percent more likely to sell, and sellers net more above asking price in the winter than any other time of year.1


Buyers also have a lot to love about the real estate offseason. While some buyers need to move during the winter, many bargain hunters search this time of year in hopes of scoring a great deal.


Smart buyers will continue to scan the market during the fall and winter for hidden gems that pop up during the offseason. There are always highly motivated sellers who need to sell quickly. And with less competition to bid against you, you’re in a better position to negotiate a great price. If you’ve been looking for a good deal on a home or investment property, now may be the best time to look!


So while a “slow market” may scare off some buyers and sellers, it can actually be the perfect time of year for you to list or purchase a home. While the rest of the market is hibernating until spring, take advantage of this opportunity to get a jump start on your competition!


 


2. EVERYONE’S MORE MOTIVATED


During the spring and summer, you’re likely to encounter “lookie-loo” buyers who are just testing the waters and unrealistic sellers who are holding out for a better offer. But the serious buyers and sellers stay active during the cold weather and holiday season, often because they need to move quickly. In fact, research shows that homes listed in the winter sell faster than any other time of year.1


January and February are peak job hiring months, which brings a surge of buyers who need to relocate quickly to start a new job.2 And of course life changes like retirement, marriage, divorce, and new babies come year round. While families often find it more convenient to move during the summer when school is out, the reality is that many don’t have the option to wait. According to the National Association of Realtors, 55 percent of all buyers purchased their home at the time they did because “it was just the right time,” not because of seasonal factors.3


If you prefer to deal with serious, highly-motivated buyers and sellers who want to act fast and don’t want to waste your time, then the offseason may be the perfect real estate season for you.


 


3. GREATER PERSONAL ATTENTION


Another key benefit to buying and selling in the offseason is the increased personal attention you’ll receive.


While we strive to provide unparalleled client service throughout the year, we simply have more time available for each individual client during slower periods. Similarly, we find the other real estate professionals in our network—including title agents, inspectors, appraisers, insurance agents, and loan officers—are able to respond faster and provide more time and attention during the offseason than they are during the busy spring and summer months. The result is a quicker and more streamlined closing process for all involved.


4. COST SAVINGS


Clients who move during the offseason often report significant cost savings. Moving costs may be discounted by 15 percent or more during the winter months, and moving companies can typically offer more flexibility in their scheduling.4


Home renovations and repairs can also be less expensive in the offseason.5 Whether you’re fixing up your property prior to listing it or remodeling your new home before moving in, contractors and service providers who are hungry for business are often willing to work for a discount this time of year. If you wait until the spring and summer, you may be forced to pay a premium.


Home stagers and decorators are also more likely to negotiate their fees during the winter. And you can often score great deals on new furniture and decor during the holiday sales.


Whether you’re buying or selling, count cost savings as another compelling reason to consider an offseason move.


 


5. EASIER TO MAINTAIN CURB APPEAL


Finally, listing your home during the fall and winter offers one key—but often overlooked—advantage: less lawn maintenance!


Good curb appeal is crucial when selling your home. According to a recent report by the National Association of Realtors, 44 percent of home buyers drove by a property after viewing it online but did NOT go inside for a walkthrough.6 That means if your curb appeal is lacking, buyers may never make it through the door.


If you list your home during the peak of the selling season, we will generally advise you to implement a frequent schedule of mowing, edging, watering, weeding, and trimming shrubs and hedges. You’ll probably want to plant flowers, as well, to brighten your exterior. After all, a lush landscape is a key element in attracting spring and summer buyers.


If you list in the offseason, however, your lawn maintenance list is significantly reduced. While we do recommend that our sellers keep their exterior clean, tidy, and free of leaves, snow, and ice, you will probably spend much less time on outdoor maintenance during the winter than you would if you listed your home in the summer.


 


ARE YOU READY TO MAKE YOUR MOVE?


Now that you know all the great reasons to buy or sell a home in the off-season, it’s time to decide whether you’re ready to make your move.


Every client’s circumstances are unique. Whether you need to move quickly or you simply want to take advantages of all benefits this season has to offer, it’s a great time to enter the market.


Give Karin a call today at 940-391-1131 to schedule a FREE consultation … and you could be ringing in the New Year in your new home!


Sources:



  1. Redfin –

    https://www.redfin.com/blog/2013/12/why-winter-is-the-hottest-time-to-sell-your-home.html#.VjKYm2SrTKI

  2. Top Resume –

    https://www.topresume.com/career-advice/the-best-times-of-the-year-to-job-search

  3. National Association of Realtors –

    https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers

  4. Angie’s List –

    https://www.angieslist.com/articles/why-winter-can-be-best-time-move.htm

  5. Build Direct –

    https://www.builddirect.com/blog/the-best-times-of-the-year-to-get-deals-on-home-remodels/

  6. National Association of Realtors –

    https://www.nar.realtor/sites/default/files/reports/2017/2017-home-buyer-and-seller-generational-trends-03-07-2017.pdf