Your Home Equity Can Offset Affordability Challenges
Are you contemplating selling your home in today's market, but the prevailing mortgage rates have given you pause? You're not alone in your concerns. Many homeowners are hesitant to sell and commit to higher mortgage rates for their next property. However, it's essential to recognize that while rates are indeed elevated, so is your home equity. Here's why this matters.
Understanding Home Equity
Home equity signifies the portion of your home that you've successfully paid off and now fully own. It represents the difference between your home's current market value and the remaining balance on your mortgage. The growth of your home equity is twofold: as your home's value appreciates over time, and as you steadily reduce the principal amount of your mortgage, your equity stake expands.
Current Levels of Home Equity
In recent years, your home equity has likely experienced more rapid growth than you might realize. To put this into perspective, CoreLogic provides valuable insight:
"The average U.S. homeowner now has about $290,000 in equity."
This substantial growth in equity is attributed to the significant surge in home prices witnessed in recent times. While the market has begun to normalize, the persistent high demand for homes continues to drive prices upward.
According to data from the Federal Housing Finance Agency (FHFA), the U.S. Census, and property data provider ATTOM, nearly 69% of homeowners either own their homes outright or possess at least 50% equity in their properties. This substantial equity is a valuable asset for many homeowners (see chart below):
Leveraging Equity to Address Affordability Concerns
In the current climate of affordability challenges, your accrued equity can make a significant difference when considering a move. Here's how:
Becoming an All-Cash Buyer: If you've been in your current home for an extended period, you may have accumulated sufficient equity to purchase a new home without the need for a mortgage. This eliminates concerns about borrowing money and navigating fluctuating mortgage rates. According to the National Association of Realtors (NAR), these all-cash buyers are effectively sidestepping the impact of higher interest rates.
Increasing Your Down Payment: Your home equity can be channeled toward your next home's down payment. In some cases, it might even enable you to make a more substantial down payment, reducing the amount you need to borrow. This can mitigate the impact of today's elevated interest rates, as Experian explains. A larger down payment translates to a lower loan-to-value ratio, which could lead to a more favorable interest rate offer from your lender.
Your home equity holds the key to addressing the affordability challenges posed by current mortgage rates. Whether you choose to become an all-cash buyer or bolster your down payment, your accrued equity provides valuable options. To explore the potential of your home equity in your next housing venture, reach out to a trusted real estate agent today.