If you find yourself short on cash to pay off credit cards, put your child through college, or fun a necessary home improvement — the solution may be right under your nose (or your feet, in this case). Tapping into home equity can be a lifesaver.
But how exactly do you pull cash out of your house? There are a few options, some more conventional than others.
Here are three ideas for using your home’s value to increase your home’s cash flow. When in doubt, reach out to a professional who can explain the best option for your particular situation.
1. Cash-Out Refinance
Refinancing your property is the most traditional way to leverage your home’s equity. A cash-out refinance option is just what it sounds like. You refinance your property with a new loan, and take some of the equity out as a cash payment.
You can use the money to fund a home remodel, consolidate other debt, or start a college fund that grows interest.
There are, however some rules. Here are the top things to know before you decide that a cash-out refinance is the way to go:
- Your lender probably won’t allow you to refinance for more than 80% of the home’s equity. If you have $100,000 in equity, you can only get a maximum of $80,000. Depending on the difference between your home’s value and current loan amount — you may not be able to get as much cash as you’d hoped.
- You’ll pay closing costs all over again. Just like when you originally got a home mortgage, there will be origination fees and other expenses associated with closing on a new mortgage. That eats into how much cash you’ll actually wind up with.
- You won’t hold onto your original interest rate. In some cases, you can lower your interest rate by refinancing. Depending on national rates, however, you may see an increase.
2. Reverse Mortgage
A reverse mortgage is only available to people who are in or nearing retirement age. If you own your home outright or have it mostly paid off, it can help you supplement your monthly income later in life.
This way to pull cash out of your home earns it’s name because instead of you paying your lender each month, they are paying you. You can only borrow as much as you home is worth. When you eventually sell your home (or the people you leave your property to sell it after your death), the lender is repaid.
In other words, you never have to leave your home to take advantage of a reverse mortgage. On the downside, while reverse mortgages are backed by the government, they are sometimes subject to scams. You must be very careful when choosing a lender to work with for a reverse mortgage.
Here are the basic rules for getting a reverse mortgage:
- You must be at least 62 years old.
- You must live in your home as your primary residence.
- If you have an existing mortgage, the reverse mortgage must be used to pay it off.
- You have to remain current on property taxes and insurance.
- You must keep your property in good condition so the home’s value doesn’t drop significantly.
3. Sell to an Investor
Most of the time, selling your home to an investor for an all-cash offer means you have to move so the new owner can update and flip the property. But not always! Sometimes you can work out a situation where you sell the property and are able to stay on as a renter, or the sale includes your right to stay in the home for a while.
It’s unconventional, but sometimes companies like California Family Homebuyers are able to keep you in your home! Since we are not working with a lender, we don’t face the usually restrictions about renting out a home to a former owner. You’ll get a check for your home and you don’t have to move right away.
Looking for a way to pull cash out of your home? Contact California Family Homebuyers today if refinancing has not been successful and you’re ready to hand over responsibility for the property. You can call us any time at 916-496-3737.