Friday, May 14, 2021

Finding a New Home for Your Next Stage of Life

Imagine the first place you lived as a young adult. Now imagine trying to fit your life today into that space. Not pretty, right?

For most of us, our housing needs are cyclical.1 A newly independent adult can find freedom and flexibility in even a tiny apartment. That same space, to a growing family, would feel stifling. For empty nesters, a large home with several unused bedrooms can become impractical to heat and clean. It’s no surprise that life transitions often trigger a home purchase.

While your home-buying journey may not look like your neighbor’s or friend’s, broad trends can help you understand what to keep in mind as you house hunt. No one wants to regret their home purchase and taking the time now to think about exactly what you need can save a lot of heartache later.

The Newly Married or Partnered Couple

The financial and legal commitment of marriage has provided a springboard to homeownership for centuries, though these days more couples are buying homes without exchanging rings. In the last few decades, changing demographics have shifted the median age of first marriage and buying a first home into the late 20s and early 30s, planting most newly married or partnered buyers firmly in the millennial generation.2,3 But no matter your age, there some key factors that you should consider as you enter your first home purchase.

Affordability is Key

There is no doubt about it—with high student loan debt and two recessions in the rearview mirror, many millennials feel that the deck is stacked against them when it comes to homeownership. And it is not just millennials—Americans of all ages are facing both financial challenges and a tough housing market. But stepping onto the property ladder can be more doable than many realize, especially in today’s low mortgage rate environment.

While many buyers are holding out for their dream home, embracing the concept of a starter home can open a lot of doors.4 In fact, that is the route that most first-time homebuyers take—the average home purchase for a 20-something is about 1,600 square feet. While the average size increases to around 1,900 square feet for buyers in their 30s, it is not until buyers reach their 40s that the average size passes 2,000 square feet.5

Chosen carefully, a starter home can be a great investment as well as a launchpad for your life together. If you focus on buying a home you can afford now with strong potential for appreciation, you can build equity alongside your savings, positioning you to trade up to a larger home in the future if your needs change.6

Taking Advantage of Low Mortgage Rates

Mortgage rates are historically low, making now the perfect time to purchase your first home together. A lower interest rate can save you tens of thousands of dollars over the life of your loan, which can significantly increase the quality of home you can get for your money.

 

But what if both halves of a couple do not have good credit? You may still have options. First, boosting a credit score can be easier than you think—simply paying your credit cards down below 30% of your limit can go a long way. But if that is not enough to boost your score, you might consider taking out the mortgage in only the better-scoring partner’s name. The downside is that applying for a mortgage with only one income will reduce your qualification amount. And if you take that route, make sure you understand the legal and financial implications for both parties should the relationship end.

Commute and Lifestyle Considerations

Whether you have lived in a rental together for years or are sharing a home for the first time, you know that living together involves some compromises. But there are certain home features that can make life easier in the future if you identify them now. The number of bathrooms, availability of closet space, and even things like kitchen layout can make a big difference in your day-to-day life and relationship.

Your home’s location will also have a significant impact on your quality of life, so consider it carefully. What will commuting look like for each of you? And if you have different interests or hobbies—say, museums vs. hiking—you will need to find a community that meets both your needs. Need some help identifying the ideal location that fits within your budget? We can match you with some great neighborhoods that offer the perfect mix of amenities and affordability.

The Growing Family

Having kids changes things fast. With a couple of rowdy preteens and maybe some pets in the mix, that 1,600 square foot home that felt palatial to two adults suddenly becomes a lot more cramped. Whether you have just had your first child or are getting to the point where your kids can’t comfortably share a bedroom any longer, there’s plenty to consider when you’re ready to size up to a home that will fit your growing family.

The Importance of School Districts

For many parents, the desire to give their kids the best education—especially once they are in middle and high school— surpasses even their desire for more breathing room. In fact, 53% of buyers with children under 18 say that school districts are a major factor in their home buying decisions.7 Of course, better funded (and often higher ranking) schools correspond to higher home prices. However, when push comes to shove, many buyers with kids prefer to sacrifice a bit of space to find a home in their desired location.

But when you’re moving to a new community, it can be tough to figure out what the local schools are actually like—and online ratings don't tell the whole story. That’s why talking to a local real estate agent can be a gamechanger. We don’t just work in this community; we know it inside and out.

Lifestyle Considerations

For many families, living space is a key priority. Once you have teenagers who want space to hang out with their friends, a finished basement or a rec room can be a huge bonus (and can help you protect some quieter living space for yourself).

A good layout can also make family life a lot easier. For example, an open plan is invaluable if you want to cook dinner while keeping an eye on your young kids playing in the living room. And if you think that you might expand your family further in the future, be sure that the home you purchase has enough bedrooms and bathrooms to accommodate that comfortably.

Functionality

Try to think about how each room will fit into your day-to-day. Are you anticipating keeping the house stocked to feed hungry teenagers? A pantry might rise to the top of the list. Dreading the loads of laundry that come with both infants and older kids (especially if they play sports)? The task can be much more bearable in a well-designed laundry room. Imagine a typical day or week of chores in the house to identify which features will have the biggest impact.

Chances are, you won’t find every nice-to-have in one home, which is why identifying the must-haves can be such a boon to the decision-making process. We can help you assess your options and give you a sense of what is realistic within your budget.

The Empty Nesters

When we talk about empty nesters, we usually think about downsizing. With kids out of the house, extra bedrooms and living space can quickly become more trouble than they’re worth. While the average buyer under 55 trades up to a larger home, buyers over 55 are more likely to purchase a smaller or similarly sized but less expensive home. Even in the highest age groups, the majority of home purchases fall in the single-family category. According to research by the National Association of Realtors, by the time buyers reach their 70s, the median home size drops to 1,750 square feet.5 But there’s plenty for empty nesters to think about besides square footage.

Maintenance and Livability

What factors are driving your decision to move? Identifying those early in the process can help you narrow down your search. For example, do you want to have space for a garden, or would you prefer to avoid dealing with lawn care altogether? What about home maintenance? In many cases, a newer home will require less maintenance than an older one and a smaller one will take less time to clean. You may also want to consider townhomes, condos, or other living situations that don’t require quite as much upkeep.

Lifestyle Considerations

Many empty nesters have retired or are nearing retirement age. This could be your chance to finally pursue hobbies and passions that were just too hard to squeeze into a 9-5. If you’re ready to move, consider how you’d like to spend your days and seek out a home that will help make that dream a reality. For some, that might mean living near a golf course or a beach. For others, being able to walk downtown for a nice dinner out is the priority. And with more time to spend as you wish, proximity to a supportive community of friends and family is priceless.

Ability to Age in Place

Let us face it—we cannot escape aging. If you are looking for a home to retire in, accessibility should be front-of-mind.8 This may mean a single-story home or simply having adequate spaces on the first floor to rearrange as needed. While buying a home that you plan to renovate from the start is a viable option, being forced into renovations (because of the realities of aging) a few years down the road could seriously dig into your nest egg. Location matters, too—if your family will be providing support, are they close by? Can you easily reach necessities like grocery stores and healthcare? While it is tempting to put it out of our minds, a few careful considerations now can make staying in your home long-term much more feasible.

Finding the Right Home for Right Now

One thing is for sure life never stands still. And your housing needs will not, either. In the United States, the median duration of homeownership hovers around 13 years.9 That means many of us will cycle through a few quite different homes as we move through different life stages. At each milestone, a careful assessment of your housing options will ensure that you are well-positioned to embrace all the changes to come.

Whatever stage you are embarking on next, we are here to help. Our insight into local neighborhoods, prices, and housing stock will help you home in on exactly where you want to live and what kind of home is right for you. I have worked with home buyers in every stage of life, so we know exactly what questions you need to ask. Buying a home—whether it is your first or your fifth—is a big decision, but we are here to support you every step of the way. 

Call/Text: 559 429-5478 or email: Mirna@EnvisionFresno.com

I support the Fair Housing Act and equal opportunity housing.

 

Sources:

1.      Freddie Mac -
http://www.freddiemac.com/blog/homeownership/20190104_homebuying_lifecycle.page

2.      PRB -
https://www.prb.org/usdata/indicator/marriage-age-women/snapshot/

3.      Experian -
https://www.experian.com/blogs/ask-experian/research/average-age-to-buy-a-house/#:~:text=Buying%20a%20first%20home%20will,by%20real%20estate%20marketplace%20Zillow

4.      Nerdwallet -
https://www.nerdwallet.com/article/mortgages/starter-home-forever-home

5.      NAR 2020 Home Buyers and Sellers Generational Trends Report -
https://cdn.nar.realtor/sites/default/files/documents/2020-generational-trends-report-03-05-2020.pdf

6.      Investopedia -
https://www.investopedia.com/personal-finance/what-look-starter-home/

7.      NAR 2019 Moving With Kids
https://www.nar.realtor/research-and-statistics/research-reports/moving-with-kids

8.      Kaiser Health News -
https://khn.org/news/baby-boomers-aging-aging-in-place-retrofit-homes/

9.      National Association of Realtors -
https://www.nar.realtor/blogs/economists-outlook/how-long-do-homeowners-stay-in-their-homes#:~:text=As%20of%202018%2C%20the%20median,varies%20from%20area%20to%20area

 

 

Tuesday, March 9, 2021

NAHREP FRESNO - Housing Policy


 Join NAHREP Fresno 3-10-21 at 9:30 A.M. to connect with the Jerry Dyer the Mayor of Fresno, Chris Ferreira from Federal Home Loan Bank of San Francisco, Alondra Williams from Community Vision, and Noerena Limon from NAHREP National Goverment Affairs. They will address the housing and economy of Fresno. 

With the ongoing chnges we are seeing in Fresno it is going to take all of us to take care of our community as we shift.

Stay connected and informed! Register: http://nahrepfresno.org/events/

Monday, August 24, 2020

Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers


In July, the average 30-year fixed-rate mortgage fell below 3% for the first time in history.1 And while many Americans have rushed to take advantage of this unprecedented opportunity, others question the hype. Are today’s rates truly a bargain?


While average mortgage rates have drifted between 4% and 5% in recent years, they haven’t always been so low. Freddie Mac began tracking 30-year mortgage rates in 1971. At that time, the national average was 7.31%.2 As the rate of inflation started to rise in the mid-1970s, mortgage rates surged. It’s hard to imagine now, but the average U.S. mortgage rate reached a high of 18.63% in 1981.3


Fortunately for home buyers, inflation normalized by October 1982, which sent mortgage rates on a downward trajectory that would bring them as low as 3.31% in 2012.3 Since 2012, 30-year fixed rates have risen modestly, with the daily average climbing as high as 4.94% in 2018.4


So what’s causing today’s rates to sink to unprecedented lows? Economic uncertainty.


Mortgage rates generally follow bond yields, because the majority of U.S. mortgages are packaged together and sold as bonds. As the coronavirus pandemic continues to dampen the economy and inject volatility into the stock market, a growing number of investors are shifting their money into low-risk bonds. Increased demand has driven bond yields—and mortgage rates—down.5


However, according to National Association of Realtors Chief Economist Lawrence Yun, “the number one driver of low mortgage rates is the accommodating Federal Reserve stance to keep interest rates low and to buy up mortgage-backed securities.” According to Yun, “we will see mortgage rates stay near this level for the next 18 months because of the significance of the Fed’s stance.”6


HOW DO LOW MORTGAGE RATES BENEFIT CURRENT HOMEOWNERS?

Low mortgage rates increase buyer demand, which is good news for sellers. But what if you don’t have any plans to sell your home? Can current homeowners benefit from falling mortgage rates? Yes, they can!


A growing number of homeowners are capitalizing on today’s rock-bottom rates by refinancing their existing mortgages. In fact, refinance applications have surged over the past few months—and for a good reason.7 Reduced interest rates can save homeowners a bundle on both monthly payments and total payments over the lifetime of a mortgage.


The chart below illustrates the potential savings when you decrease your mortgage rate by just one percentage point. When it comes to refinancing, the bigger the spread, the greater the savings.


Estimated Monthly Payment On a 30-Year Fixed-Rate Mortgage

Loan Amount

4.0%

3.0%

Monthly Savings

Savings Over 30 Years

$100,000

$477$422$55$20,093

$200,000

$955$843$112$40,184
$300,000$1,432$1,265$167$60,277
$400,000$1,910$1,686$224$80,368
$500,000$2,387$2,108$279$100,461

Be sure to factor in any prepayment penalties on your current mortgage and closing costs for your new mortgage. For a refinance, expect to pay between 2% to 5% of your loan amount.8 You can divide your closing costs by your monthly savings to find out how long it will take to recoup your investment, or use an online refinance calculator. For a more precise calculation of your potential savings, we’d be happy to connect you with a mortgage professional in our network who can help you decide if refinancing is a good option for you.


HOW DO LOW MORTGAGE RATES BENEFIT HOME BUYERS?


We’ve already shown how low rates can save you money on your mortgage payments. But they can also give a boost to your budget by increasing your purchasing power. For example, imagine you have a budget of $1,500 to put toward your monthly mortgage payment. If you take out a 30-year mortgage at 5.0%, you can afford a loan of $279,000.


Now let’s assume the mortgage rate falls to 4.0%. At that rate, you can afford to borrow $314,000 while still keeping the same $1,500 monthly payment. That’s a budget increase of $35,000!


If the rate falls even further to 3.0%, you can afford to borrow $355,000 and still pay the same $1,500 each month. That’s $76,000 over your original budget! All because the interest rate fell by two percentage points. If you’ve been priced out of the market before, today’s low rates may put you in a better position to afford your dream home. 


On the other hand, rising mortgages rates will erode your purchasing power. Wait to buy, and you may have to settle for a smaller home in a less-desirable neighborhood. So if you’re planning to move, don’t miss out on the phenomenal discount you can get with today’s historically-low rates.



HOW LOW COULD MORTGAGE RATES GO?


No one can say with certainty how low mortgage rates will fall or when they will rise again. A lot will depend on the trajectory of the pandemic and subsequent economic impact. 


Forecasters at Freddie Mac and the Mortgage Bankers Association predict 30-year mortgage rates will average 3.2% and 3.5% respectively in 2021.9,10 However, economists at Fannie Mae expect them to dip even lower to an average of 2.8% next year.11 


Still, many experts agree that those who wait to take advantage of these unprecedented rates could miss out on the deal of a lifetime. “With rates now at all-time historic lows, it’s hard to imagine that people may be holding out for something even better," warns Paul Buege, president and COO of Inlanta Mortgage.12 Positive news about a vaccine or a faster-than-expected economic recovery could send rates back up to pre-pandemic levels.



HOW CAN I SECURE THE BEST AVAILABLE MORTGAGE RATE?


While the average 30-year mortgage rate is hovering around 3%, you can do a quick search online and find advertised rates that are even lower. But these ultra-low mortgages are typically reserved for only prime borrowers. So what steps can you take to secure the lowest possible rate?


Consider a 15-Year Mortgage Term


Lock in an even lower rate by opting for a 15-year mortgage. If you can afford the higher monthly payment, a shorter mortgage term can save you a bundle in interest, and you’ll pay off your home in half the time.13


Give Your Credit Score a Boost


The economic downturn has made lenders more cautious. These days, you’ll probably need a credit score of at least 740 to secure their lowest rates.14 While there’s no fast fix for bad credit, you can take steps to help your score before you apply for a loan:15 

Dispute inaccuracies on your credit report.

Pay your bills on time, and catch up on any missed payments.

Hold off on applying for new credit.

Pay off debt, and keep balances low on your credit cards.

Don’t close unused credit cards (unless they’re charging you an annual fee).


Make a Large Down Payment


The more equity you have in a home, the less likely you are to default on your mortgage. That’s why lenders offer better rates to borrowers who make a sizable down payment. Plus, if you put down at least 20%, you can avoid paying for private mortgage insurance.


Pay for Points


Discount points are fees paid to the mortgage company in exchange for a lower interest rate. At a cost of 1% of the loan amount, they aren’t cheap. But the investment can pay off over the long-term in interest savings.


Shop Around


Rates, terms, and fees can vary widely amongst mortgage providers, so do your homework. Contact several lenders to find out which one is willing to offer you the best overall deal. But be sure to complete the process within 45 days—or else the credit inquiries by multiple mortgage companies could have a negative impact on your credit score.16



READY TO TAKE ADVANTAGE OF THE LOWEST MORTGAGE RATES IN HISTORY?


Mortgage rates have never been this low. Don’t miss out on your chance to lock in a great rate on a new home or refinance your existing mortgage. Either way, we can help. 


We’d be happy to connect you with the most trusted mortgage professionals in our network. And if you’re ready to start shopping for a new home, we’d love to assist you with your search—all at no cost to you! Contact us today to schedule a free consultation.

📛Mirna Garcia            📞 559 429-5478                📧 Mirna@EnvisionFresno.com


The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.


Sources:

CNN Business -

https://www.cnn.com/2020/07/16/success/30-year-mortgage-rates-record-low/index.html

Freddie Mac -

http://www.freddiemac.com/pmms/pmms30.html) 

Value Penguin -

https://www.valuepenguin.com/mortgages/historical-mortgage-rates

Federal Reserve Bank of St. Louis -

https://fred.stlouisfed.org/graph/?g=NUh

Bankrate -

https://www.bankrate.com/mortgages/how-interest-rates-are-set/

Washington Post -

https://www.washingtonpost.com/business/2020/06/25/mortgage-rate-remains-historic-low/

Yahoo! Finance -

https://finance.yahoo.com/news/mortgage-refinancing-makes-big-comeback-151500346.html

Bankrate -

https://www.bankrate.com/mortgages/is-no-closing-cost-for-you/

Freddie Mac June 2020 Quarterly Forecast -

http://www.freddiemac.com/fmac-resources/research/pdf/202006-Forecast.pdf

Mortgage Bankers Association Mortgage Market Forecast July 15, 2020 - 

https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary

Fannie Mae July 2020 Housing Forecast -

https://www.fanniemae.com/resources/file/research/emma/pdf/Housing_Forecast_071420.pdf

Washington Post -

https://www.washingtonpost.com/business/2020/06/25/mortgage-rate-remains-historic-low/

Investopedia -

https://www.investopedia.com/articles/personal-finance/042015/comparison-30year-vs-15year-mortgage.asp

Money -

https://money.com/mortgage-rates-below-three-percent/ 

Experian -

https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/

Equifax -

https://www.equifax.com/personal/education/credit/report/understanding-hard-inquiries-on-your-credit-report/

Friday, March 27, 2020

#StayHome: How to Create Functional Spaces in Your Home During the Coronavirus Outbreak





Since the outbreak of the novel coronavirus (COVID-19), many of us are spending a lot more time at home. We’re all being called upon to avoid public spaces and practice social distancing to help slow the spread of this infectious disease. While it can be understandably challenging, there are ways you can modify your home and your lifestyle to make the best of this difficult situation.

Here are a few tips for creating comfortable and functional spaces within your home for work, school, and fitness. We also share some of our favorite ways to stay connected as a community, because we’re all in this together … and no one should face these trying times alone.


Begin with the Basics

A basic home emergency preparedness kit is a great addition to any home, even under normal circumstances. It should include items like water, non-perishable food, a flashlight, first aid kit, and other essentials you would need should you temporarily lose access to food, water, or electricity.

Fortunately, authorities don’t anticipate any serious interruptions to utilities or the food supply during this outbreak. However, it may be a good time to start gathering your emergency basics in a designated location, so you’ll be prepared now-—and in the future—should your family ever need them.

Ready to start building an emergency kit for your home? Contact us for a free copy of our Home Emergency Preparation Checklist!


Working From Home

Many employees are being asked to work remotely. If you’re transitioning to a home office for the first time, it’s important to create a designated space for work … so it doesn’t creep into your home life, and vice versa. If you live in a small condominium or apartment, this may feel impossible. But try to find a quiet corner where you can set up a desk and comfortable chair. The simple act of separating your home and work spaces can help you focus during work hours and “turn off” at the end of the day.

Of course, if you have children who are home with you all day (given many schools and daycares are now closed), separating your home and work life will be more difficult. Unless you have a partner who can serve as the primary caregiver, you will need to help manage the needs of your children while juggling work and virtual meetings.

If both parents are working from home, try alternating shifts, so you each have a designated time to work and to parent. If that’s not an option, experts recommend creating a schedule for your children, so they know when you’re available to play, and when you need to work.1 A red stop sign on the door can help remind them when you shouldn’t be disturbed. And for young children, blocking off a specific time each day for them to nap or have independent screen time can give you a window to schedule conference calls or work uninterrupted.




Homeschooling Your Children

Many parents with school-aged children will be taking on a new challenge: homeschooling. Similar to a home office, designating a space for learning activities can help your child transition between play and school. If you’re working from home, the homeschooling area would ideally be located near your workspace, so you can offer assistance and answer questions, as needed.

If possible, dedicate a desk or table where your child’s work can be spread out—and left out when they break for meals and snacks. Position supplies and materials nearby so they are independently accessible, and place a trash can and recycling bin within reach for easy cleanup. A washable, plastic tablecloth can help transition an academic space into an arts and crafts area.

 If the weather is nice, try studying outside! A porch swing is a perfect spot for reading, and gardening in the backyard is a great addition to any science curriculum.

In addition to creating an academic learning environment, find age-appropriate opportunities for your children to help with household chores and meal preparation. Homeschooling advocates emphasize the importance of developing life skills alongside academic ones.2 And with more meals and activities taking place at home, there will be ample opportunity for every family member to pitch in and help.


Staying Fit


With gyms closed and team sports canceled, it can be tempting to sit on the sofa and binge Netflix. However, maintaining the physical health and mental wellness of you and your family is crucial right now. Implementing a regular exercise routine at home can help with both. 


If you live in a community where you can safely exercise outdoors while maintaining the recommended distance between you and other residents, try to get out as much as possible. If the weather is nice, go for family walks, jogs, or bike rides.

Can’t get outside? Fortunately, you don’t need a home gym or fancy exercise equipment to stay fit. Look for a suitable space in your home, garage, or basement where you can comfortably move—you’ll probably need at least a 6’ x 6’ area for each person. Many cardio and strength training exercises require little (or no) equipment, including jumping jacks, lunges, and pushups.

And if you prefer a guided workout, search for free exercise videos on YouTube—there are even options specifically geared towards kids—or try one of the many fitness apps available.


Socializing From a Distance

Even though we’re all being called upon to practice “social distancing” right now, there are still ways to stay safely connected to our communities and our extended families. Picking up the phone is a great place to start. Make an effort to reach out to neighbors and loved ones who live alone and may be feeling particularly isolated right now.

And while parties and playdates may be prohibited, modern technology offers countless ways to organize networked gatherings with family and friends. Try using group video conferencing tools like Google Hangouts and Zoom to facilitate a virtual happy hour or book club. Host a Netflix Party to watch (and chat about) movies with friends. Or plan a virtual game night and challenge your pals to a round of Psych or Yahtzee.

There are safe ways to connect offline, too. Rediscover the lost art of letter writing. Drop off groceries on an elderly neighbor’s porch. Or organize a neighborhood “chalk walk,” where children use sidewalk chalk to decorate their driveways and then head out for a stroll to view their friends’ artwork.

Of course, there’s one group of people who you can still socialize with freely—those who reside in your home. Family dinners are back, siblings are reconnecting, and many of us have been given the gift of time, with commutes, activities, and obligations eliminated. In fact, some families are finding that this crisis has brought them closer than ever.


YOU ARE NOT ALONE

Even with all of the tools and technology available to keep us connected, many of us are still feeling stressed, scared, and isolated. However, you can rest assured that you are not alone. We’re not only here to help you buy and sell real estate. We want to be a resource to our clients and community through good times and bad. If you and your family are in need of assistance, please reach out and let us know how we can help.



Sources:

Friday, March 6, 2020

373 S Peach Avenue - Fresno


This amazing property was built in 1918 for John Euless and is zoned a Historic site with the City and County of Fresno. Most of the homes wood features and stained glass have been restored to their beautiful richness. We have added modern features like decorative tile flooring, glass chandeliers, new carpet, fully redesigned bathrooms and a chef's kitchen. This historic property is beautiful beyond belief and is ready for its new family to call it home!


https://mirna.envisionfresno.com-Peach


Thursday, February 20, 2020

Take Advantage of Your Home Equity: A Homeowner’s Guide





Homeownership offers many advantages over renting, including a stable living environment, predictable monthly payments, and the freedom to make modifications. Neighborhoods with high rates of homeownership have less crime and more civic engagement. Additionally, studies show that homeowners are happier and healthier than renters, and their children do better in school.1

But one of the biggest perks of homeownership is the opportunity to build wealth over time. Researchers at the Urban Institute found that homeownership is financially beneficial for most families,2 and a recent study showed that the median net worth of homeowners can be up to 80 times greater than that of renters in some areas.3

So how does purchasing a home help you build wealth? And what steps should you take to maximize the potential of your investment? Find out how to harness the power of home equity for a secure financial future.


WHAT IS HOME EQUITY?

Home equity is the difference between what your home is worth and the amount you owe on your mortgage. So, for example, if your home would currently sell for $250,000, and the remaining balance on your mortgage is $200,000, then you have $50,000 in home equity.

$250,000 (Home’s Market Value)
-           $200,000 (Mortgage Balance)
______________________________
             $50,000 (Home Equity)

The equity in your home is considered a non-liquid asset. It’s your money; but rather than sitting in a bank account, it’s providing you with a place to live. And when you factor in the potential of appreciation, an investment in real estate will likely offer a better return than any savings account available today.


HOW DOES HOME EQUITY BUILD WEALTH?

A mortgage payment is a type of “forced savings” for home buyers. When you make a mortgage payment each month, a portion of the money goes towards interest on your loan, and the remaining part goes towards paying off your principal, or loan balance. That means the amount of money you owe the bank is reduced every month. As your loan balance goes down, your home equity goes up.

Additionally, unlike other assets that you borrow money to purchase, the value of your home generally increases, or appreciates, over time. For example, when you pay off your car loan after five or seven years, you will own it outright. But if you try to sell it, the car will be worth much less than when you bought it. However, when you purchase a home, its value typically rises over time. So when you sell it, not only will you have grown your equity through your monthly mortgage payments, but in most cases, your home’s market value will be higher than what you originally paid. And even if you only put down 10% at the time of purchase—or pay off just a small portion of your mortgage—you get to keep 100% of the property’s appreciated value. That’s the wealth-building power of real estate.


WHAT CAN I DO TO GROW MY HOME’S EQUITY FASTER?

Now that you understand the benefits of building equity, you may wonder how you can speed up your rate of growth. There are two basic ways to increase the equity in your home:

1)    Pay down your mortgage.

We shared earlier that your home’s equity goes up as your mortgage balance goes down. So paying down your mortgage is one way to increase the equity in your home.

Some homeowners do this by adding a little extra to their payment each month, making one additional mortgage payment per year, or making a lump-sum payment when extra money becomes available—like an annual bonus, gift, or inheritance.

Before making any extra payments, however, be sure to check with your mortgage lender about the specific terms of your loan. Some mortgages have prepayment penalties. And it’s important to ensure that if you do make additional payments, the money will be applied to your loan principal.

Another option to pay off your mortgage faster is to decrease your amortization period. For example, if you can afford the larger monthly payments, you might consider refinancing from a 30-year or 25-year mortgage to a 15-year mortgage. Not only will you grow your home equity faster, but you could also save a bundle in interest over the life of your loan.

2)    Raise your home’s market value.

Boosting the market value of your property is another way to grow your home equity. While many factors that contribute to your property’s appreciation are out of your control (e.g. demographic trends or the strength of the economy) there are things you can do to increase what it’s worth.

For example, many homeowners enjoy do-it-yourself projects that can add value at a relatively low cost. Others choose to invest in larger, strategic upgrades. Keep in mind, you won’t necessarily get back every dollar you invest in your home. In fact, according to Remodeling Magazine’s latest Cost vs. Value Report, the remodeling project with the highest return on investment is a garage door replacement, which costs about $3600 and is expected to recoup 97.5% at resale. In contrast, an upscale kitchen remodel—which can cost around $130,000—averages less than a 60% return on investment.4

Of course, keeping up with routine maintenance is the most important thing you can do to protect your property’s value. Neglecting to maintain your home’s structure and systems could have a negative impact on its value—therefore reducing your home equity. So be sure to stay on top of recommended maintenance and repairs.


HOW DO I ACCESS MY HOME EQUITY IF I NEED IT?

When you put your money into a checking or savings account, it’s easy to make a withdrawal when needed. However, tapping into your home equity is a little more complicated.

The primary way homeowners access their equity is by selling their home. Many sellers will use their equity as a downpayment on a new home. Or some homeowners may choose to downsize and use the equity to supplement their income or retirement savings.

But what if you want to access the equity in your home while you’re still living in it? Maybe you want to finance a home renovation, consolidate debt, or pay for college. To do that, you will need to take out a loan using your home equity as collateral.

There are several ways to borrow against your home equity, depending on your needs and qualifications:5

1)    Second Mortgage - A second mortgage, also known as a home equity loan, is structured similar to a primary mortgage. You borrow a lump-sum amount, which you are responsible for paying back—with interest—over a set period of time. Most second mortgages have a fixed interest rate and provide the borrower with a predictable monthly payment. Keep in mind, if you take out a home equity loan, you will be making monthly payments on both your primary and secondary mortgages, so budget accordingly.

2)    Cash-Out Refinance - With a cash-out refinance, you refinance your primary mortgage for a higher amount than you currently owe. Then you pay off your original mortgage and keep the difference as cash. This option may be preferable to a second mortgage if you have a high interest rate on your current mortgage or prefer to make just one payment per month.

3)    Home Equity Line of Credit (HELOC) - A home equity line of credit, or HELOC, is a revolving line of credit, similar to a credit card. It allows you to draw out money as you need it instead of taking out a lump sum all at once. A HELOC may come with a checkbook or debit card to enable easy access to funds. You will only need to make payments on the amount of money that has been drawn. Similar to a credit card, the interest rate on a HELOC is variable, so your payment each month could change depending on how much you borrow and how interest rates fluctuate.

4)    Reverse Mortgage - A reverse mortgage enables qualifying seniors to borrow against the equity in their home to supplement their retirement funds. In most cases, the loan (plus interest) doesn’t need to be repaid until the homeowners sell, move, or are deceased.6

Tapping into your home equity may be a good option for some homeowners, but it’s important to do your research first. In some cases, another type of loan or financing method may offer a lower interest rate or better terms to fit your needs. And it’s important to remember that defaulting on a home equity loan could result in foreclosure. Ask us for a referral to a lender or financial adviser to find out if a home equity loan is right for you.


WE’RE HERE TO HELP YOU

Wherever you are in the equity-growing process, we can help. We work with buyers to find the perfect home to begin their wealth-building journey. We also offer free assistance to existing homeowners who want to know their home’s current market value to refinance or secure a home equity loan. And when you’re ready to sell, we can help you get top dollar to maximize your equity stake. Contact us today to schedule a complimentary consultation, 559 429-5478 or at Mirna@EnvisionFresno.com!


The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.


Sources:
4.     Remodeling Magazine -
https://www.remodeling.hw.net/cost-vs-value/2019/