3 Ways to Use Your Home Equity — Loan, Sale, or Sharing Agreement
If you're a homeowner, you may be able to access the equity in your home — the portion of your home's value that you own outright — to get cash. There are several ways to do this, each with different benefits and risks.
Before taking any action, it's important to understand the different types of equity and how they work. Home equity is the portion of your home's value that you own outright. It's the difference between your home's appraised value and the outstanding balance on your mortgage.
You can use your home equity to get cash in one of three ways: through a home equity loan, by selling your home outright, or by entering into an equity sharing agreement.
Each option has different benefits and risks that you should consider before taking action.
A home equity loan is a loan that is secured by your home. This means that if you default on the loan, your lender could foreclose on your home. Home equity loans typically have lower interest rates than unsecured loans, making them a good option if you need to borrow a large amount of money.
However, you'll need to be sure that you can afford the monthly payments on a home equity loan. If you're not able to make the payments, you could lose your home.
Selling your home outright is another way to access the equity in your home. This option can be a good choice if you need a large amount of cash quickly.
However, selling your home will likely mean that you'll have to move out and find a new place to live. This can be a challenge, especially if you're not able to find another home that you can afford.
An equity sharing agreement is a third option for accessing the equity in your home. With an equity sharing agreement, you enter into a contract with another party, such as an investor, in which you agree to sell a portion of your home's equity to them.
This option can be a good choice if you're not able to qualify for a home equity loan or if you don't want to sell your home outright. However, it's important to be aware that you'll be giving up a portion of your home's equity and you'll need to make sure that you're comfortable with the terms of the agreement.
Before taking any action, it's important to speak with a financial advisor to discuss your options and to make sure that you're taking the best course of action for your unique situation.