With housing prices on the rise in nearly every corner of the country, it’s only natural to wonder if you should tap into some of your growing home equity. This is especially true if you bought your way into the housing market several years ago, or if you need cash to keep up with the rising price of gas and groceries, or to pay for a large expense like college tuition or a backyard pool.
A quick look at the numbers shows how much home equity many new buyers already have. A recent report from the National Association of Realtors (NAR) showed that the sales price for existing homes rose 15.4% to $350,300 during the year leading up to January 2022. Not only that, but sales price rose by 6.7% in January 2022 from the prior month, meaning that someone who purchased a home at the end of 2021 probably locked in instant equity within a single month’s time.
Unfortunately, traditional lenders may not be quite as willing to offer home equity loans or home equity lines of credit (HELOCs) as they once were. This was especially true in the midst of the pandemic when banks tightened requirements for all kinds of borrowing, but it may still be true for buyers today who recently purchased their homes or don’t have considerable equity in their properties.
According to the Federal Trade Commission (FTC), many lenders prefer to extend home equity loans and HELOCs to borrowers who have at least 20% in equity in their homes. For a house that is currently worth the January 2022 median sales price of $350,300, that means a borrower would likely need to owe considerably less than $280,240 to have any equity to pull from. Not only that, but there are income and credit requirements to meet, some of which may be steep.
Home equity sharing agreements to be used for home remodeling.
Home Equity Alternatives
Not surprisingly, quite a few companies have come up with innovative home equity products meant to help solve this issue for homeowners. These home equity alternatives are typically referred to as home equity investment or sharing companies, yet there are also sale leaseback companies to be aware of.
With a sale leaseback, the company actually purchases your home and you lease it from them until you’re ready to move or you want to buy it back (if that’s an option). Sale leasebacks don’t require the prior homeowner to make the mortgage payments, but they do have to pay rent.