Own a home? Take advantage of rising home equity Six years after prices collapsed, housing has begun to climb out of its hole. So what are the best moves to make now? In a three-part series, we offer smart strategies for buyers, sellers, and owners in today’s market.
Are you a homeowner? Not planning to sell your house anytime soon? You can still take advantage of the rebound in the market by putting your rising home equity to work for you in the long run.
Seize the opportunity to refinance.
If you haven’t had enough equity to refinance your mortgage at the record-low rates of the past couple of years, it’s time to try again.
Chances are you own more of your home than you did a year ago; according to the Federal Reserve, homeowners’ equity rose 18% from the third quarter of 2011 to the same period last year.
For a traditional refi, lenders typically require 20% equity; should you fall short of that, you’ll have to choose either a refi with private mortgage insurance or an FHA loan. PMI rates have come down, so that’s probably the better choice if your credit score is above 680. Otherwise, go for the FHA, which has less stringent underwriting guidelines.
Tap your home equity for home or school.
Looking for help funding school or a renovation? The market for home-equity loans and lines of credit has loosened up: After falling for years, HELOC originations jumped 7% in 2012, according to Equifax.
“Lenders are becoming more comfortable making these loans,” says Keith Gumbinger of mortgage information publisher HSH.com. While variable-rate HELOCs have averaged a steady 5.15% over the past year, lenders have gotten more aggressive on pricing fixed-rate equity loans; rates have dropped to an average 6.25%, down from 6.8% one year ago — cheaper than borrowing at the 7.9% rate on federal Parent PLUS college loans.
Because lenders got burned in the bust, prepare to jump through hoops. “You’ll have more paperwork for a $50,000 loan than for a $300,000 mortgage,” says industry expert Cecala. Start shopping at your current bank — you might get a half-a-point deal on your loan, says Gumbinger.
Upgrade your creature comforts.
Did declining home values make you feel less wealthy — and more nervous about spending money on your home? Let rising prices give you the confidence to start fixing things up again.
A good place to start: the bathroom, which in recent years has topped the long-reigning kitchen as homeowners’ top renovation project, according to the National Association of Home Builders. “People aren’t looking for anything really sexy, just how to live better in the house,” says NAHB economist Stephen Melman.
To get an idea of what various projects would cost, use Zillow’s new Digs tool (zillow.com/digs) to get localized estimates. Trying to decide whether it makes more sense to relocate than renovate?
Grab that tax credit, already.
Still haven’t taken advantage of the home energy-efficiency tax credit — the $500 break that’s been around since 2006? Thanks to the fiscal-cliff deal passed in January, you have another year to qualify for the subsidy. By Dec. 31, add energy efficient upgrades, such as weather stripping, windows, or a new furnace, and you’ll get that $500 credited when you file your tax return for 2013.
By Amanda Gengler