Using Your Home Equity: HELOC, Equity Loans, and Shared Equity
Equity is a confusing term. It’s somewhat abstract and difficult to define, and it’s easy to get confused with all the ways it can be used. Here’s our guide to understanding equity and how you can use it to your advantage.
What is Equity?
Equity is the difference between what your home is worth and what the outstanding balance of all loans on your home is. The longer you’ve owned your property (assuming you are making timely payments), the more equity you build as your property increases in value. Building equity is an important way to grow, maintain, and sustain wealth in America.
Home Equity Loan
A home equity loan is something to be used when you have a large, one-time expense coming up. This loan essentially borrows from your own wealth, with your home equity being the collateral for the loan.
These come as cash, and are generally only available for larger amounts. You won’t use this for small expenses. When dealing with a home equity loan, you may have to go through some of the same processes you went through when obtaining your mortgage (closing costs, appraisal fees, etc.).
A Home Equity Line of Credit is a bit different from an equity loan, although the concept is the same. Your home equity is still collateral, but in this scenario you are utilizing the loan as a credit card, rather than a lump sum. You only pay interest on what you actually use, and there are no closing costs involved. These lines of credit can be safety nets for people during difficult times.
Shared equity is an interesting kind of loan. Here, the investor gives you a certain amount of money in exchange for a portion of your home’s equity. This means you give up a small portion of ownership over your property to the investor. Rather than paying them monthly or with interest, they collect a certain percentage of your home’s appreciation value.
This is something you don’t have to worry about when working with Home.LLC. You provide 5% for the down payment, and we cover the rest to get you to 20%. Don’t pay us a dime until you move out (or 10 years later, if you choose to buy us out and stay).
Equity is a powerful thing that you can use to leverage to your advantage. Our company is built on the belief that everyone should be able to create and maintain equity. We exist to help you utilize that equity before you even have it, to build wealth and get out of the endless rental cycle. Schedule a call to see how we can partner with you at home.llc today.