3 Ways to Tap Into Your Home’s Equity
If you own a home and need cash, you might be thinking about tapping into your home’s equity. After all, your home is probably your biggest asset. You can access the equity in your home in three ways: selling your home outright, entering into an equity sharing agreement, or taking out a home equity line of credit (HELOC).
Each option has its own pros and cons, so it’s important to consider all three before making a decision. Here’s a closer look at each:
Selling Your Home Outright
If you sell your home outright, you’ll receive a lump sum of cash. You can then use that cash for anything you want, whether it’s paying off debt, making home improvements, or investing in another property.
One of the biggest advantages of selling your home outright is that you’ll have no monthly payments to worry about. Once the sale is complete, the money is yours to do with as you please.
Another advantage is that you won’t have to worry about your credit score. When you take out a HELOC or enter into an equity sharing agreement, your credit score will likely be a factor in determining whether or not you qualify. If you sell your home outright, your credit score won’t be a factor.
The biggest disadvantage of selling your home outright is that you won’t have the same equity in your home. If the value of your home increases, you won’t benefit from that appreciation. And if you need cash again in the future, you’ll have to sell another asset to get it.
Equity Sharing Agreement
An equity sharing agreement is a contract between you and another party, such as an investor, in which you agree to share the equity in your home. The investor provides you with a lump sum of cash upfront, and in return, they receive a portion of the equity in your home when it’s sold.
One of the biggest advantages of an equity sharing agreement is that you don’t have to make monthly payments. The investor takes on that responsibility. And since the investor is sharing in the equity of your home, they have an incentive to help you make it as valuable as possible.
Another advantage is that you can still benefit from the appreciation of your home. If the value of your home increases, you’ll share in that appreciation.
The biggest disadvantage of an equity sharing agreement is that you’ll have to give up a portion of the equity in your home. And if the value of your home decreases, you’ll still be responsible for paying back the investor.
Home Equity Line of Credit (HELOC)
A HELOC is a loan that’s secured by the equity in your home. Unlike a traditional loan, a HELOC allows you to borrow only what you need, when you need it. You can think of it as a revolving line of credit that you can tap into as needed.
One of the biggest advantages of a HELOC is that it’s flexible. You can borrow only what you need, when you need it. And since it’s a line of credit, you can continue to borrow from it as long as you have equity in your home.
Another advantage is that the interest on a HELOC may be tax-deductible. Consult with a tax advisor to see if you qualify.
The biggest disadvantage of a HELOC is that it’s a loan, which means you’ll have to make monthly payments. And if you don’t make those payments, you could lose your home.