Considering selling your house and concerned about the current mortgage rates? You're not alone. Some homeowners hesitate to sell, fearing they might face higher mortgage rates on their next home. However, it's important to recognize that while rates are currently elevated, home equity is also at a high level. Here's a breakdown of what you should understand.
Bankrate provides a clear explanation of what equity is and how it accumulates:
“Home equity is the portion of your home that you’ve paid off and own outright. It’s the difference between what the home is worth and how much is still owed on your mortgage. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity stake grows.”
In other words, equity is how much your home is worth now, minus what you still owe on your home loan.
How Much Equity Do Homeowners Have Now?
As for the current equity situation, it has been increasing more rapidly than one might expect. To put it into perspective, CoreLogic states:
"... the average U.S. homeowner now has about $290,000 in equity."
This substantial growth in equity is a result of significant increases in home prices over the past few years, accelerating the accumulation of equity. While the market is gradually stabilizing, the demand for homes still exceeds the available supply, leading to a resurgence in home prices.
Data from the Federal Housing Finance Agency (FHFA), the Census, and ATTOM, a property data provider, indicates that nearly two-thirds (68.7%) of homeowners have either fully paid off their mortgages or possess at least 50% equity (refer to the chart below):
That means nearly 70% of homeowners have a tremendous amount of equity right now.
How Equity Helps with Your Affordability Concerns
Given the current affordability challenges, the equity you've accumulated can significantly impact your decision to move. Once you sell your house, you can leverage your home equity in the following ways:
Be an all-cash buyer: If you've been a long-time resident in your current home, your equity might be substantial enough to enable you to purchase a new house outright without requiring a loan. This means you can avoid concerns about mortgage rates. The National Association of Realtors (NAR) notes: "These all-cash home buyers are happily avoiding the higher mortgage interest rates."
Make a larger down payment: Your equity can be utilized for your next down payment, potentially allowing you to put down a more significant amount. This approach reduces the need to borrow a substantial sum, making current interest rates less of a hurdle. As explained by Experian: "Increasing your down payment lowers your principal loan amount and, consequently, your loan-to-value ratio, which could lead to a lower interest rate offer from your lender." Bottom Line
If you're thinking about moving, the equity you've built up can make a big difference, especially today. To find out how much equity you've got in your current house and how you can use it for your next home, let’s connect. 626-653-6903 | firstname.lastname@example.org | www.thechouteam.com 388 E Valley Blvd UNIT 106, Alhambra, CA 91801