If you want to sell your home but don’t have the cash needed for repairs, you may have considered a cash-out loan. Why not refinance and get extra money out when that money will be going back into your house? Surely you’ll get it back when you sell… right?
Unfortunately, the answer is often no. Let’s take a quick look at cash-out loans, equity, and how using cash-out loans to make repairs before a sale affects your equity. This will help you understand how you can make the most of the equity you do have.
What is a cash-out loan?
A cash-out loan is when you refinance for more than you owe on your house, and receive the extra money back in cash. Your mortgage then has a larger balance, but you have that cash on-hand. Funding repairs this way generally has the benefit of lower interest rates as compared to a personal loan.
What is equity and why is it so important?
A homeowner’s equity helps build long-term wealth over time. Here’s a look at what equity is and why it matters.
For a homeowner, your equity is the current value of your home minus what you owe on the loan. So, as home values climb, your equity does too. That’s exactly what’s happening today—there aren’t enough homes on the market to meet buyer demand, so bidding wars and multiple offers are driving prices up on desirable homes. Right now, this low supply and high demand are giving current homeowners a significant equity boost.
Dr. Frank Nothaft, Chief Economist at CoreLogic, explains it like this:
“Home price growth is the principal driver of home equity creation. The CoreLogic Home Price Index reported home prices were up 17.7% for the past 12 months ending September, spurring the record gains in home equity wealth.”
According to the latest Homeowner Equity Insights from CoreLogic, the average homeowner’s equity has grown by $56,700 over the last 12 months.
How does rising equity affect you?
Equity not only builds your wealth, it also opens doors for you to achieve your goals. It works like this: when you sell your house, the equity you built up comes back to you in the sale. You can use those proceeds to fuel your next move, especially if you’ve decided your needs have changed and you’re looking for something new. What about using equity before you sell, though? Let’s look at the situation we mentioned before—using a cash-out loan to fund repairs before a sale.
Using a cash-out loan to update your home is throwing away equity.
Since equity is the value of your home minus what you owe, a cash-out loan always lowers your equity. You might think that’s not a big deal since you’re getting that equity out in cash to put back into your house, hypothetically raising the value of your home.
Unfortunately, many repairs do not have a good ROI, which means using equity to update your home before you sell is a risky move. By doing a cash-out loan for repairs or updates, you’re pulling out equity that you likely won’t get back. If you’re doing those repairs to sell your home on the open market, don’t forget to add in fees and commission that will further eat up your equity.
Don’t worry, though: no-commission sales are real, and it’s possible to sell your home without wasting a single drop of equity.
Work with MarketPro:
When you sell to MarketPro Homebuyers, you make the most of your home’s equity. You can use your current home to fund the purchase of your new home without wasting a dollar.
Here’s how: We’ll give you a fast and fair cash offer for your current home just as it is now. You can even choose your exact closing date to coordinate perfectly with the purchase of your new home. Our team will walk you through your quote, including a review of what your home would likely bring on the open market. You won’t need to fund any repairs or pay any fees or commissions.
If you’re in Washington, D.C., Maryland, Virginia, or Pennsylvania, we’d love to show you how easy and stress-free the sales process can be. Contact us today for a no-pressure quote.