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Building Wealth with Home Equity

Your Digital Home Advisors

by zac folsom

Home Equity: A Source of Strength for Homeowners Today

Experts agree there’s no chance of a large-scale foreclosure crisis like we saw back in 2008, and that’s good news for the housing market. As Mark Fleming, Chief Economist at First Americansays:

“. . . don’t expect a housing bust like the mid-2000s, as lending standards in this housing cycle have been much tighter and homeowners have historically high levels of home equity, so there likely won’t be a surge in foreclosures.”

Data from the Mortgage Bankers Association (MBA) helps tell this story. It shows the overall percentage of homeowners at risk is decreasing significantly with time (see graph below):

Home Equity: A Source of Strength for Homeowners Today | MyKCMBut even though the volume of homeowners at risk is very low, there is still a small percentage of homeowners who may be coming face to face with foreclosure as a possibility today. If you’re facing difficulties yourself, it can help to understand your options. It starts with knowing what foreclosure is. Investopedia defines it like this:

The good news is there are alternatives available to help you avoid going through the foreclosure process, including:

  • Reinstatement
  • Loan modification
  • Deed-in-lieu of foreclosure
  • Short sale

But before you go down any of those paths, it’s worth seeing if you have enough equity in your home to sell it and protect your investment.


You May Be Able To Use Your Equity To Sell Your House

Equity is the difference between what you owe on the home and its market value based on factors like price appreciation.

In today’s real estate market, many homeowners have far more equity in their homes than they realize due to the home price appreciation we’ve seen over the past few years. According to CoreLogic:

“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”

So, what does that mean for you? If you’ve lived in your house for at least a few years or more, chances are your home’s value, and your equity, has risen dramatically. In addition, the mortgage payments you’ve made during that time chipped away at the balance of your loan. If your home’s current value is higher than what you still owe on your loan, you may be able to use that increase to your advantage.

Rick Sharga, Executive VP of Market Intelligence at ATTOM Dataexplains how equity can help:

“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”

What does it mean to have equity in Kalamazoo? Is it the same as cash?

Homeownership and home equity can be viewed as a strategy to increase the accumulation of wealth. As your mortgage debt decreases and your house’s value increases, your property becomes an appreciating asset. Other major purchases don’t usually appreciate the way a house does over time.

Equity denotes the value of your possessions at the end of a 30-year loan period. If you have met all of your loan obligations by the end of the loan term, then you will have 100 equity in your home. If you sell or transfer ownership before the loan or face settlement or bankruptcy, the loan-holder will keep the money.

What is a good home equity loan rate?

You need to take into consideration a number of criteria when looking for a good rate, including your credit score, how much more equity you have, and your location. If you have an average or below average credit score, the interest rate you’re offered might be above the national average. So it will always be wise to consider your options with multiple lenders; that way, you can determine which lender offers the best rate for your situation.

How do I calculate my home equity in Kalamazoo and How much equity can I cash out?

Your home equity quantifies your ownership stake in your home and real estate property. Your home equity is calculated by multiplying your mortgage balance (and any lending) by the home’s current value. For example, if your home is currently valued at $400,000 and you owe $150,000, your home equity would be $250,000.
Lenders are inclined to limit the amount of cash you can borrow to 80–85 percent of your typical equity. As an example, if you have $250,000 in equity, you may borrow up to $200,000.

Lean on Experts To Explore Your Options

To find out how much equity you have, work with a local real estate professional. They can give you an estimate of what your house could sell for based on recent sales of similar homes in your area. You may be able to sell your house to avoid foreclosure.

If you find out you have to pursue other options, your agent can help with that too. They’ll be able to connect you with other professionals in the industry, like housing counselors, who can look into your unique situation and offer advice on next steps if selling isn’t your best alternative.

Where to Go From Here

If you’re a homeowner facing hardship, let’s connect so you have an expert on your side to explore your options and see if you can sell your house to avoid foreclosure.