If you’ve been considering moving but are unsure if it’s financially feasible, consider the equity you’ve built up in your current home. Home equity is the difference between the market value of your home and the amount you owe on your mortgage. It can be a powerful tool to help you make your next move. Here’s how your equity could make a move possible:
1. Understanding Home Equity
Home equity increases as you pay your mortgage and your home’s market value appreciates. For example, if your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity.
2. Using Equity as a Down Payment
One of the most direct ways to use your home equity is as a down payment on your next home. A substantial down payment can lower your monthly mortgage payments, potentially allowing you to afford a more expensive home than you could otherwise.
3. Qualifying for a Better Mortgage
Significant equity can improve your financial profile, making you a more attractive loaner. This can help you secure better mortgage terms, such as a lower interest rate, saving you money over the life of the loan.
4. Funding Home Improvements
If you plan to sell your current home, you can use your equity to fund renovations or improvements to increase its market value. Investing in upgrades can make your home more appealing to buyers and potentially increase your selling price, providing even more equity to use for your next purchase.
5. Bridging the Gap Between Transactions
Sometimes, selling your current home and buying a new one doesn’t align perfectly. Home equity can provide the funds needed to bridge this gap. For example, you can use a home equity line of credit (HELOC) or a bridge loan to access your equity and make a down payment on a new home before your current home sells.
6. Reducing or Eliminating PMI
If you didn’t have a large down payment when you bought your current home, you might be paying for private mortgage insurance (PMI). By using your equity for a significant down payment on your new home, you might avoid PMI, reducing your monthly payments and overall costs.
7. Increasing Your Buying Power
Significant home equity can increase your buying power. It can allow you to move to a more desirable neighborhood, buy a larger home, or purchase a property with features you’ve always wanted. This increased buying power can open up more possibilities and make your move worthwhile.
Your home equity can be a valuable resource that makes moving possible. Whether you’re looking to upgrade, downsize, or relocate to a different area, leveraging your equity can provide the financial flexibility needed to make your next move. By effectively understanding and utilizing your home equity, you can take a significant step towards achieving your real estate goals and finding your next dream home.
