The What, Why And How’s Of Home Equity

Owning a house can help build wealth. Everyone knows that homes are expensive, and most houses increase in value over time. If you want a long-term investment, then real estate is one of your go-to options.

Homeowners have the option to reside on their homes, lease it, sell it or even use it as collateral for a home loan. But of course, there’s a catch when signing up your home for a mortgage – you need to have enough home equity to cash out.

What Is Home Equity?

Your home equity refers to the percentage you own in your home minus any liens you may have on the property. For example, you bought the house with the help of a mortgage. As you pay your lender back, you get to build equity over time. In other words, home equity is the current market value of your house minus any percentage of your home you owe.

Good Read: How do I calculate how much home equity I have?

Why Does Home Equity Matters?

Home Equity is wealth waiting for you to use it. As your equity grows, so does your money. However, you can only “cash out” by tapping on your home equity. Consider it as a “forced savings account.” You need to build enough equity before you can “tap” on it, cash it out and use the funds on how you wish to spend it.

How To Tap On Your Home Equity?

Homeowners can choose between the two options wherein you have your home as collateral. Home Equity Loan is a type of Second Mortgage wherein you get to receive a lump sum of cash. Most 2nd Mortgage Texas have fixed-rates.

Home Equity Lines Of Credits or many call these as HELOCs for short, works like a credit card. You get to withdraw a certain amount whenever you the funds.

Every lender will have different requirements when it comes to credit scores, DTI ratio, and LTV ratio, but you’ll need to have enough home equity to qualify for a HELOC or Home Equity Loan.

What Are The Common Ways Homeowners Use Their Home Equity?

Home Equity matters since you can use this to fund many personal endeavors. The following five common reasons many homeowners choose to tap on their equity.

  • Home Improvement Projects.
  • Debt Consolidation.
  • Fund Investment Properties.
  • Fund Business Ventures.
  • Emergency Expenses.

Recommended Read: 5 reasons to spend your home equity (with caution)

How To Build Home Equity?

Building home equity takes time. However, you can do it faster with the following tips.

  • Start with a big down payment. When buying a house with the help of a mortgage, it would be best to put down at least 20% of the property’s value. The bigger the down payment, that would be your instant home equity which means it’s better than paying the minimum down payment.
  • Take a 15-year home loan or refinance it. You get to save on interest and own more of your house by taking a shorter home loan or refinancing it into a 15-year mortgage.
  • Invest in improving your home. By engaging on home improvement projects that can boost your home value, you also get to increase your home equity.
  • Wait it out. Most real estate properties increase in value over time. You can choose to wait it out, and your home’s equity will naturally increase after a few years.

Effectively Market A House

1. Determine niche: What might be the ideal buyer, for your house? Is it better suited, for a bigger family, or would it be considered, a starter – home, or step – down type? Are the schools in the area, a positive, selling point? How convenient are factors, such as transportation, shopping, entertainment, etc? Doesn’t it make sense, to consider this, first, to proceed, with a focused marketing plan?

2. Marketing Plan: Once you have determined, who, and what, you are marketing, agent and homeowner, should come, to a meeting – of – the – minds, and determine a quality, detailed, marketing plan, so they can proceed, with teamwork, and, on, the same page. How will the house, be marketed? Where will it be promoted and advertised. and why? What will be the agent’s responsibilities, and which will be the homeowners? Working together, understanding their joint strategy, and focusing, on the best way, to have the home presented, are key, early steps.

3. Teamwork: When agent and client, understand what they seek, and work together, towards a goal, the potential of effectively marketing it, is exponentially enhanced. From the onset, create and develop a working timeline, schedule, price adjustment – considerations, etc.

4. Selling – interactive and proactive: There’s a big difference between sales, and selling. While sales is a description, effective selling must be interactive, using follow – ups, and a strategy, and proactive. Agents must present the property, inspire and motivate, and become professional sales – closers, in order to get the best results.

5. Pricing: The initial Listing Price, should be based, on a professionally designed and prepared, Competitive Market Analysis, also known as a C.M.A. Homes priced, right, from the start, generally get the best results. Agent and homeowner, should discuss nuances of pricing, including the need for price – adjustments, when market conditions dictate.

6. Negotiations: Home sales need the help of professional negotiators! When the approach is open, honest, and based on win – win, homeowners win!

7. Closing: The goal of the process must be on closing the deal. When an agent provides professional guidance and service, he markets the house, from the onset, focused on achieving the best closing results.

Right Mortgage Broker

Normally it’s in the best interest of the seller to continue with the offer rather than drop it for the next one. However if you got the accepted deal while in a multiple offer circumstance, the situation isn’t stable. The seller doesn’t want to lose time dealing with you when they might have another buyer who has been bugging them for a chance.

Time delays in an offer

When I receive an offer or create one for my buyers, we normally see 10-14 calendar days for financing for a residential property. Over the years, I have been finding that banks are taking much longer to approve the financing. They have stricter criteria and more red tape, which creates more delays. Many buyers may not have their files complete with their mortgage broker as well, which also creates time delays.

“I’ve experienced hundreds of interactions with mortgage brokers, and there have been instances that could have easily been avoided with the right questions from the start. On one deal I did, the mortgage broker was from Calgary. He didn’t know our laws, the time difference was an issue and he didn’t speak French. It was horrible for me and my clients.”

Questions to ask yourself about your mortgage broker

– Do they live in Montreal (know the Quebec laws and speaks French)?
– Will they be available or will they be on vacation or away?
– Will they take care of your case 100{14462856f41fbd3a1c8ed58913b1d1f3122c7ea36a3acb20d3ee051f6e936335}, and not pass it on to an assistant or let the bank deal with it all? (Meaning will they represent you fully and take care of you completely)
– Are they available on weekends for emergencies?
– Do they work for one bank and their products, or are they independent and work with all banks?
– Which banks do they have personal relationships with. This helps to have pull if they need to ask a favour for a rush job.
– For expenses, make sure from the start that the bank evaluation is paid for by someone else besides yourself, preferably the bank. Some mortgage brokers have special deals with notaries or movers, helping you save money.

These questions are to help you chose the best person to work on your team. Yes team. When buying, your team consists of your mortgage broker, your real estate broker, a notary, insurance broker and your building inspector. For all of these professionals, you will either be using a recommended person or doing research to find the best deal. Deal = price + service.

Before Purchase New Home

Before you look at your first house, you should review your credit report and check it for inaccuracies. Once per year, you can get a free copy of your credit report at: annualcreditreport.com. Before you contact a bank or mortgage company, review the report and clean up any past issues and make sure there are no inaccuracies or mistakes. To qualify for a mortgage, you will need to meet the minimum credit qualification standards.

If you are a first-time buyer or have had credit issues in the past, it is a good idea to talk to your family and friends and ask them to refer a mortgage professional that they have had a good experience with when they applied for a mortgage. To apply for a mortgage, you will need at a minimum the following documentation: pay stubs, bank statements, tax returns, and other personal information. If possible, try and meet your loan officer face to face. This will give you peace of mind and reduce stress. If you are concerned your mortgage could be denied, be sure that you apply for a fully underwritten mortgage pre-approval. A pre-approval will take longer to complete than a pre-qualification, but it will eliminate unforeseen issues such as: employment history verification, residencies history questions, verified funds, past credit issues, and other potential problems. During the pre-approval process, your loan officer should thoroughly review any mortgage programs and down payment options that may benefit you.

Once your pre-approved for a mortgage. Review your budget and determine the maximum monthly mortgage payment that you are comfortable with and the total funds you have available to purchase your new house. When buying a house, remember to include all expenses, such as: upfront costs (appraisal fee, insurance, warranties, and inspections), down payment, closing costs, and moving expenses. Both the real estate agent and mortgage loan officer should be able to give you an itemized estimate of the likely expenses associated with purchasing your new home.
Next determine, what features you need and want in a house and what cities would be the most desirable to you and your family?There may be many well maintained and affordable homes available in your search area that have the features you are looking for. Make sure you prioritize your desired features. You may not be able to get everything on your wish list, but knowing what your requirements are before you get started will make your search easier.

Financially Preparing To Buy A House

1. Get a copy of your personal Credit Report: At least 6 months, prior to, beginning your house – hunting, get a copy of your personal Credit Report, and review it thoroughly. Take steps to correct any errors and/ or mistakes, in order to be as prepared, as possible. This can, either be done, by yourself, or, one can take advantage of using professionals, who might do so, for you! Remember, the better your report and credit score, the better your mortgage terms, and ease of securing the best one, for you!

2. Correct, fix and address: Don’t merely get a copy, but correct it, if needed, fix any deficiencies, which might be detrimental, and address any issues, or potential ones. Again, you can do so, yourself, or use the assistance of a professional!

3. Save as much as possible: Be prepared with the necessary funds for your down – payment, as well as any other funds needed, for Closing, In addition, begin to accumulate as much of a reserve, as possible, in order to maximize your enjoyment, and reduce the stress!

4. Do not open any new credit: Often, when we shop, the store offers their Credit Card, and informs you, there will be a discount, if you do, so! However, this is a false – savings, because opening any new credit card accounts, might negatively impact your overall Credit Rating!

5. Re – pay, as much debt, as possible: Mortgage lenders use a formula, which weighs the ratio of your income, to overall debt. Therefore, if you re – pay, as much of your other debt, during this preparation period, as practical and possible, you will enhance your personal credit!

6. Accumulate down = payment, and reserves: The better prepared one is, the less stressful, this period of time, is! Be prepared, with sufficient funds, for the down – payment, closing costs, and reserves.

7. Use a quality mortgage banker/ broker: Discuss your situation, needs and requirements, as far in advance, as possible, with a professional mortgage banker or broker. This individual should be able to provide quality, relevant advice, which will position you, properly!

Buying First Home

Before you start looking for your first home, you will need to be financially prepared by saving a deposit. Generally, saving 10{14462856f41fbd3a1c8ed58913b1d1f3122c7ea36a3acb20d3ee051f6e936335} of the value of your first home is a great target since it meets most lender’s requirements. Ideally that 10{14462856f41fbd3a1c8ed58913b1d1f3122c7ea36a3acb20d3ee051f6e936335} has been saved over a minimum period of 3 months which is known as ‘genuine savings’. Showing lenders you can regularly save means they trust you more to make your loan repayments.

That 10{14462856f41fbd3a1c8ed58913b1d1f3122c7ea36a3acb20d3ee051f6e936335} will be split into 1) your deposit and 2) associated costs. One of the biggest costs will be stamp duty, along with legal costs, strata and building report costs.

It is now time to figure out exactly how much a lender will loan you, and how much you can afford to repay. Financial factors that are considered include, how much you get paid, how much debt you have, your living expenses, your assets and more.

It will also be time to figure out what incentives are available to first home buyers in your state. Depending on the value of your first home, stamp duty might be waived or discounted along with potential first home owner grants.

This is a pretty big step. Choosing your lender and the loan product you like is a big decision. But remember, choosing a loan is not just about the rate. Additional considerations, like if there is a fee to pay off a lump sum of your loan, if the rate is fixed for a period or the availability of offset accounts are all important. And sometimes a slightly higher rate might give you all the additional features you want.

Having a home loan pre-approval means that your lender has given you a conditional ‘thumbs up’ for your home loan. This means you can go out and find that dream home secure in the knowledge of how much you can spend. The pre-approval to aim for is one where the lender has seen proof of your income, debts and other financial factors as this is the most secure.

Home Ownership

Homeowners are likely to live healthier and longer. This hidden perk is anchored on the fact that newly built homes now adhere to standards that promote healthier, more sustainable, and greener way of living. From materials used to the design standards, the occupants are much into reaping better air quality inside the house.

Persons with own house are less likely to develop and suffer from anxiety, depression, and other related mental health conditions. This does not erase the fact that there will still be some percentage, but to some extent conditions such as these are likely to be hampered. First, the owner is relieved from the stress of thinking of when and how to secure a safe shelter for children. Then, the owner is also freed of thinking where children will live in case something unfortunate happens. Also, an own home is a contributing factor towards the effective parent-children relationship.

Children develops self-esteem. While it is true that it is upon the nurturing and guidance of parents that children develop self-esteem, it is also important to understand that aside from toys and other recreation, an own home has a big impact to a child’s personality. His or her self-esteem roots from being proud that his or her parents have actually provided them with a safe and sound home. It isn’t important if the house is big or small as long as it is one that is full of love and understanding.

Homeowners develop a sense of camaraderie among other homeowners in the neighborhood. No man is an island. While privacy is promoted in an own home, it is still good to have other people within your surroundings. Your neighbors is one of them. Friendship will develop along time and this will be helpful in establishing cooperation among neighbors especially in times of unfortunate events, grieving, emergencies, and disasters.

Essentials When Buying Property

Location

One of the most important factors to consider when buying a home is the location. The location is as important as the price of the property. Believe it or not, the location affects how you live later on.

Imagine buying property away fro civilization, how would you suppose to find a good commute to work? Unlike buying aroperty that has good security system, you would surely live at peace and feeling safe every single day.

When buying property, first determine where the location should be that would best fit your needs.

Neighborhood

As important as location is the neighborhood. When you visit the location, try to know the status of the neighborhood and make sure they are friendly and nonviolent. It is important that you are comfortable living with your neighbors. Otherwise, it would be a regret in the end.

You can perhaps talk to the neighbors during your visit and ask them about the people living in the location. Perhaps they can give you better insights about the place and the people living nearby. They can even tell you how safe and convenient the location is.

Price

When it comes to buying aroperty, you can never go wrong asking about the price. The price is perhaps the most significant buying factor for most buyers.

Properties are expensive, therefore most potential buyers would really care to ask about it. So if you are someone who is really planning to buy property, you need to make sure that the price offered is right for you!

Set your budget way ahead of time as part of your preparation. Consider the listings available and look for one that fits best your needs and budget.

If the price is too high for you, that’s alright! There’s still lots of listings you can find.

Get a real estate agent

If you can’t find the property of your dreams, don’t get frustrated yet. What better way to do it than to find a good real estate agent to help you?

Sometimes, it is hard to find property, especially if you have other things to be busy with. Leave the task to a reliable real estate agent. They are professionals who are well acquainted with the entire process, therefore they can be there for you when you need them the most.

With the help of a real estate agent, the entire process could be faster and you would be able to get a good deal right away!

Economic Considerations

1. Tax deductions: Although, for many, especially, those in, so – called, high SALT states/ regions, the tax deductions, associated with home ownership, are less than they have traditionally been, there is still an, up – to $10,000 tax deduction, on one’s federal tax return, for the state and local taxes, we pay, Therefore, when we consider, whether, there are advantages, to buying, instead of renting, this must be factored in. If the net – numbers, of renting, versus, owning, are compared, and if they are close, home ownership often becomes more economically, advantageous, because of the appreciation, and equity, involved, in owning.

2. Mortgage/ mortgage interest: Mortgage interest, up to that paid, on a $1 million mortgage, is still, tax – deductible, so, when one considers, if it makes sense, for him to purchase, this must also be considered. In addition, a wise consumer considers, whether his monthly costs, are within their personal comfort zone, and strengthens, their enjoyment, etc.

3. Local real estate market: While there is, often, much discussion, about the overall, real estate market, every local area, is different, and certain ones, appreciate more, and/ or, depreciate, less, than other areas/ regions/ neighborhoods! One should, carefully, consider, whether, the location of the particular property, is one, which meets your needs, and priorities, desires, before buying, because, unlike renting, purchasing a home, requires far more commitment, than renting, does.

Credit Home Buyer

1. Research; reliable; responsive; responsible: Do your personal research, and know, what’s needed, and necessary, to make the process, as easy, as possible! Don’t fool yourself, but, rather, proceed, in a reliable, prepared manner! When information, paperwork, etc, are needed, by a lending institution, you must be responsive, to requests, etc. You must be a truly responsible, adult, if you hope, this process, goes smoothly!

2. Examine; excellent; enhance: The main advantage of getting a pre – approval, is there will be few last – minute surprises! Carefully review and examine, all credit – related aspects, etc. Know if your credit is excellent, and, if not as good, as you might desire, do what’s necessary, to enhance and improve it, systematically, and effectively!

3. Agenda; attitude; attention; If you want to buy a home, you probably will need a mortgage, to assure the best results! This must become your focus and strong, strict, focused agenda! Proceed with a positive attitude, and a willingness to listen to the experts, and do so, responsively! Pay attention, and be responsible!

4. Do: If you want this to go well, don’t assume you’re the expert, but, rather, proceed, in a focused manner, and do, what you’re advised and told to! The ideal approach and focus to becoming credit – ready, is to proactively, help the professionals, help and serve your best interests!

5. You: If you really want to buy that home, you must realize, nearly everyone, especially first – time home buyers, must take advantage of using a mortgage. If you do what your told, and take personal responsibility, for promptly producing whatever documentation, is requested, and/ or acquiring what’s required (such as insurance, etc), you will make this process, far easier, and more effective!