How to Get Started in Real Estate Investing

How to Get Started in Real Estate Investing

Posted in Buying by John Trupin 

Investing in real estate is one of the world’s most venerable pathways to building wealth. When properly managed, income from renting or real estate investment trusts can provide you with the financial security to plan out the rest of your life. The conclusion is easy to envision, but knowing where to begin can be overwhelming, particularly for anyone who has never previously owned a home.

At Windermere our goal is always to improve and support our communities, so we’ve put together a few key things to keep in mind as you enter the world of real estate investment.

Know the right type of investment for you

Investing in real estate needn’t commit you to being a landlord. A Real Estate Investment Trust (REIT) is a low-maintenance way to get involved in real estate with next to none of the day-to-day monitoring required of direct property management. REITs are trusts that typically own multiple properties, and investors may purchase shares within the REIT. Typically, as the value of the property rises, so too do the values of your shares. If you’d like to dip a toe into real estate investing before diving in fully, a REIT is a great place to start.

Start with your own home

Owning the roof over your head is a basic step towards investing success. Even better, when you plan to live in the home you’re buying (rather than renting it out), you will likely benefit from lower mortgage rates and a cheaper down payment. The reasoning is straightforward – lenders see a loan to people purchasing the home they live in as an investment in people highly committed to the property.

Once you’ve owned your own house for a few years, you can look to purchase a new home to move into. By purchasing the new home with the intent to move in, you’ll be eligible to receive more favorable financing once again. After you’ve secured your new home, your first home is primed to be transformed into a rental property, and you can continue to see a return on your investment. If you’re seeking further support with buying a first, second, or third home, our website and our agents are full of information.

Cast a wide net

The best investment opportunity isn’t always going to be right underneath your nose. While there are logistical benefits to focusing locally with your investment, you may miss more profitable opportunities in another burgeoning market. Real estate is a long game, and patience tends to be rewarded. There’s no cause to rush a decision of this magnitude, so investigating other states and regions to find the property that best fits your situation is a process worth considering.

Posted on May 21, 2018 at 5:00 pm
Windermere Community Realty | Category: Finance, Market Trends

Oregon & Southwest Washington Real Estate Update

Oregon & Southwest Washington Real Estate Update

Posted in Oregon and Southwest Washington Real Estate Market Update byMatthew Gardner, Chief Economist, Windermere Real Estate 

The following analysis of the Oregon and Southwest Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact me.

 

ECONOMIC OVERVIEW

The State of Oregon has added 43,700 new jobs over the past 12 months, representing a robust annual growth rate of 2.3%. Job growth picked up in the first quarter of 2018, with significant annual gains in Education & Health Services (+26,000), Leisure & Hospitality (+9,700), and Construction (+7,400). Oregon’s unemployment rate was 4.1%, matching the number seen a year ago and remaining in record low territory.

 

HOME SALES ACTIVITY

  • First quarter home sales dropped by a modest 0.8% compared to the same period last year, with a total of 12,775 sales.
  • Sales rose the most in Tillamook County, which saw a 33% increase compared to the first quarter of 2017. There were also noticeable increases in Wasco, Hood River, Jefferson, and Crook Counties. Home sales fell the most in Columbia, Klickitat, Marion, and Yamhill Counties.
  • Year-over-year sales rose in 14 counties and dropped in the other 12 counties contained in this report.
  • Sales were a bit of a mixed bag in the first quarter, but I still believe that lower sales velocities are due to extremely low levels of inventory in the region and not a decline in demand.

 

HOME PRICES

  • The average home price in the region rose 9.9% year-over-year to $367,316. That number is 1.2% higher than the fourth quarter of 2017. 
  • Tillamook County again led the market with the strongest annual price growth. Homes there sold for 54.2% more than a year ago. That said, it’s worth noting that it is a very small market, making it prone to substantial swings in average sale prices.
  • All counties other than Hood River saw price growth over the first quarter of 2017. Half experienced significant, double-digit increases.
  • The takeaway from this report is that, in aggregate, price growth continues to trend well above historic averages.

 

 

DAYS ON MARKET

  • The average number of days it took to sell a home in the region dropped by 12 days when compared to the first quarter of 2017, but was up 9 days from the fourth quarter of 2017.
  • The average time it took to sell a home in the region last quarter was 88 days.
  • Twenty-one counties saw the length of time it took to sell a home drop when compared to a year ago. One remained the same while four saw market time rise.
  • Homes sold the fastest in Washington (36 days), Clark (41 days), and Multnomah (42 days) Counties.

 

CONCLUSIONS

The speedometer reflects the state of the region’s housing market using housing inventory, price gains, home sales, interest rates, and larger economic factors. Housing markets throughout Oregon and Southwest Washington continue to benefit greatly from the healthy regional economy. Home sales remain very strong and, given that inventory levels are unlikely to increase substantially in the near term, sellers remain firmly in the driver’s seat. Even with rising interest rates, demand continues to outstrip supply, so I have moved the needle a little more in favor of sellers.

 

 

 

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics and has more than 30 years of professional experience both in the U.S. and U.K.

Posted on May 2, 2018 at 1:11 pm
Windermere Community Realty | Category: Finance, Market Trends, The Gardner Report

How Tax Reform Affects Homeowners

 

New tax legislation was signed into law at the end of 2017, and it included some significant changes for homeowners. These changes took effect in 2018 and do not influence your 2017 taxes.  Here’s a brief overview of this year’s tax changes and how they may affect you*.

 

The amount of mortgage interest you can deduct has decreased.

Under the old law, taxpayers could deduct the interest they paid on a mortgage of up to $1 million. The new law reduces the mortgage interest deduction from $1 million to $750,000. These changes do not affect mortgages taken out before December 15, 2017.

 

The home equity loan deduction has changed.

The IRS states that, despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled. The Tax Cuts and Jobs Act of 2017, enacted December 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

 

The property tax deduction is capped at $10,000.

Previously taxpayers could deduct all the state, local and foreign real estate taxes they paid with no cap on the amount. The new law limits the deduction for all state and local taxes – including income, sales, real estate, and personal property taxes – to $10,000.

 

The casualty loss deduction has been repealed.

Homeowners previously could deduct unreimbursed casualty, disaster and theft losses on their property. That deduction has been repealed, with an exception for losses on property located in a federally declared disaster area.

 

The capital gains exclusion remains unchanged.

Homeowners can continue to exclude up to $500,000 for joint filers or $250,000 for single filers for capital gains when selling their primary residence as long as they have lived in the home for two of the past five years. An earlier proposal would have increased that requirement to five out of the last eight years and phase out the exclusion for high-income households, but it was struck down. Find out more about 2018 tax reform.

 

How does tax reform affect your plans for buying or selling a home?

The changes in real estate related taxes may change your strategy. Contact your Windermere agent to learn more. If you need help finding an agent, we’re happy to help.

 

*Please consult your tax advisor if you have any questions about how the new tax reform impacts you

Posted on March 30, 2018 at 11:59 am
Windermere Community Realty | Category: City of Portland, Finance, Home Improvement, Market Trends

A Home Addition: What to Consider Before Starting to Build

A Home Addition: What to Consider Before Starting to Build

Posted in SellingLiving, and Architecture by Kenady Swan 

 

 

Adding on to your current home may be your best bet if you’re short on space, but you don’t want to move or can’t find another house in the area with all the qualities you’re seeking. It’s also an attractive option if the house you have is lacking just one significant element (a family room, another bedroom, a larger kitchen, a separate apartment, etc.).

On the other hand, even a modest addition can turn into a major construction project, with architects and contractors to manage, construction workers traipsing through your home, hammers pounding, and sawdust everywhere. And although new additions can be a very good investment, the cost per-square-foot is typically more than building a new home, and much more than buying a larger existing home.

 

Define your needs

To determine if an addition makes sense for your particular situation, start by defining exactly what it is you want and need. By focusing on core needs, you won’t get carried away with a wish list that can push the project out of reach financially.

If it’s a matter of needing more space, be specific. For example, instead of just jotting down “more kitchen space,” figure out just how much more space is going to make the difference, e.g., “150 square feet of floor space and six additional feet of counter space.”

If the addition will be for aging parents, consult with their doctors or an age-in-place expert to define exactly what they’ll require for living conditions, both now and over the next five to ten years.

 

Types of additions

Bump-out addition—“Bumping out” one of more walls to make a first floor room slightly larger is something most homeowners think about at one time or another. However, when you consider the work required, and the limited amount of space created, it often figures to be one of your most expensive approaches.

First floor addition—Adding a whole new room (or rooms) to the first floor of your home is one of the most common ways to add a family room, apartment or sunroom. But this approach can also take away yard space.

Dormer addition—For homes with steep rooflines, adding an upper floor dormer may be all that’s needed to transform an awkward space with limited headroom. The cost is affordable and, when done well, a dormer can also improve the curb-appeal of your house.

Second-story addition—For homes without an upper floor, adding a second story can double the size of the house without reducing surrounding yard space.

Garage addition—Building above the garage is ideal for a space that requires more privacy, such as a rentable apartment, a teen’s bedroom, guest bedroom, guest quarters, or a family bonus room.

 

Permits required

You’ll need a building permit to construct an addition—which will require professional blueprints. Your local building department will not only want to make sure that the addition adheres to the latest building codes, but also ensure it isn’t too tall for the neighborhood or positioned too close to the property line. Some building departments will also want to ask your neighbors for their input before giving you the go-ahead.

 

Requirements for a legal apartment

While the idea of having a renter that provides an additional stream of revenue may be enticing, the realities of building and renting a legal add-on apartment can be sobering. Among the things you’ll need to consider:

  • Special permitting—Some communities don’t like the idea of “mother-in-law” units and therefore have regulations against it, or zone-approval requirements.
  • Separate utilities—In many cities, you can’t charge a tenant for heat, electricity, and water unless utilities are separated from the rest of the house (and separately controlled by the tenant).
  • ADU Requirements—When building an “accessory dwelling unit” (the formal name for a second dwelling located on a property where a primary residence already exists), building codes often contain special requirements regarding emergency exists, windows, ceiling height, off-street parking spaces, the location of main entrances, the number of bedrooms, and more.

In addition, renters have special rights while landlords have added responsibilities. You’ll need to learn those rights and responsibilities and be prepared to adhere to them.

 

Average costs

The cost to construct an addition depends on a wide variety of factors, such as the quality of materials used, the laborers doing the work, the type of addition and its size, the age of your house and its current condition. For ballpark purposes, however, you can figure on spending about $200 per square food if your home is located in a more expensive real estate area, or about $100 per food in a lower-priced market.

You might be wondering how much of that money might the project return if you were to sell the home a couple years later? The answer to that question depends on the aforementioned details; but the average “recoup” rate for a family-room addition is typically more than 80 percent.

 

The bottom line

While you should certainly research the existing-home marketplace before hiring an architect to map out the plans, building an addition onto your current home can be a great way to expand your living quarters, customize your home, and remain in the same neighborhood.

Posted on March 21, 2018 at 1:40 pm
Windermere Community Realty | Category: Finance, Home Improvement, Moving Tips

Homeowners Insurance: Protecting Your Home

Homeowners Insurance: Protecting Your Home

Posted in Buying by Kenady Swan 

 

In addition to providing shelter and comfort, our home is often our single greatest asset. And it’s important that we protect that precious investment. Most homeowners realize the importance of homeowners insurance in safeguarding the value of a home. However, what they may not know is that about two-thirds of all homeowners are under-insured. According to a national survey, the average homeowner has enough insurance to rebuild only about 80% of his or her house.

 

What a standard homeowners policy covers

A standard homeowner’s insurance policy typically covers your home, your belongings, injury or property damage to others, and living expenses if you are unable to live in your home temporarily because of an insured disaster.

The policy likely pays to repair or rebuild your home if it is damaged or destroyed by disasters, such as fire or lighting. Your belongings, such as furniture and clothing, are also insured against these types of disasters, as well as theft. Some risks, such as flooding or acts of war, are routinely excluded from homeowner policies.

Other coverage in a standard homeowner’s policy typically includes the legal costs for injury or property damage that you or family members, including your pets, cause to other people. For example, if someone is injured on your property and decides to sue, the insurance would cover the cost of defending you in court and any damages you may have to pay. Policies also provide medical coverage in the event someone other than your family is injured in your home.

If your home is seriously damaged and needs to be rebuilt, a standard policy will usually cover hotel bills, restaurant meals and other living expenses incurred while you are temporarily relocated.

 

How much insurance do you need?

Homeowners should review their policy each year to make sure they have sufficient coverage for their home. The three questions to ask yourself are:

·      Do I have enough insurance to protect my assets?

·      Do I have enough insurance to rebuild my home?

·      Do I have enough insurance to replace all my possessions?

Here’s some more information that will help you determine how much insurance is enough to meet your needs and ensure that your home will be sufficiently protected.

 

Protect your assets

Make sure you have enough liability insurance to protect your assets in case of a lawsuit due to injury or property damage. Most homeowner’s insurance policies provide a minimum of $100,000 worth of liability coverage. With the increasingly higher costs of litigation and monetary compensation, many homeowners now purchase $300,000 or more in liability protection. If that sounds like a lot, consider that the average dog bite claim is about $20,000. Talk with your insurance agent about the best coverage for your situation.

 

Rebuild your home

You need enough insurance to finance the cost of rebuilding your home at current construction costs, which vary by area. Don’t confuse the amount of coverage you need with the market value of your home. You’re not insuring the land your home is built on, which makes up a significant portion of the overall value of your property. In pricey markets such as San Francisco, land costs account for over 75 percent of a home’s value.

The average policy is designed to cover the cost of rebuilding your home using today’s standard building materials and techniques. If you have an unusual, historical or custom-built home, you may want to contact a specialty insurer to ensure that you have sufficient coverage to replicate any special architectural elements. Those with older homes should consider additions to the policy that pay the cost of rebuilding their home to meet new building codes.

Finally, if you’ve done any recent remodeling, make sure your insurance reflects the increased value of your home.

Remember that a standard policy does not pay for damage caused by a flood or earthquake. Special coverage is needed to protect against these incidents. Your insurance company can let you know if your area is flood or earthquake prone. The cost of coverage depends on your home’s location and corresponding risk.

 

Replacing your valuables

If something happens to your home, chances are the things inside will be damaged or destroyed as well. Your coverage depends on the type of policy you have. A cost value policy pays the cost to replace your belongings minus depreciation. A replacement cost policy reimburses you for the cost to replace the item.

There are limits on the losses that can be claimed for expensive items, such as artwork, jewelry, and collectables. You can get additional coverage for these types of items by purchasing supplemental premiums.

To determine if you have enough insurance, you need to have a good handle on the value of your personal items. Create a detailed home inventory file that keeps track of the items in your home and the cost to replace them.

 

Create a home inventory file

It takes time to inventory your possessions, but it’s time well spent. The little bit of extra preparation can also keep your mind at ease.  The best method for creating a home inventory list is to go through each room of your home and individually record the items of significant value. Simple inventory lists are available online. You can also sweep through each room with a video or digital camera and document each of your belongings. Your home inventory file should include the following items:

·      Item description and quantity

·      Manufacturer or brand name

·      Serial number or model number

·      Where the item was purchased

·      Receipt or other proof of purchase \Photocopies of any appraisals, along with the name and address of the appraiser

·      Date of purchase (or age)

·      Current value

·      Replacement cost

Pay special attention to highly valuable items such as electronics, artwork, jewelry, and collectibles.

 

Storing your home inventory list

Make sure your inventory list and images will be safe incase your home is damaged or destroyed. Store them in a safe deposit box, at the home of a friend or relative, or on an online Web storage site. Some insurance companies provide online storage for digital files. (Storing them on your home computer does you no good if your computer is stolen or damaged). Once you have an inventory file set up, be sure to update it as you make new purchases.

We invest a lot in our homes, so it’s important we take the necessary measures to safeguard it against financial and emotional loss in the wake of a disaster.

Posted on March 19, 2018 at 4:31 pm
Windermere Community Realty | Category: Finance, Home Improvement

Oregon and Southwest Washington Real Estate Market Update

 

 

ECONOMIC OVERVIEW

The State of Oregon added 30,600 new jobs over the past 12 months, representing an annual growth rate of 1.7%. Although job growth continues to slow, solid gains were still seen in the Construction (+7,400), Education & Health Services (+6,400), and Leisure & Hospitality (+5,200) sectors.

Oregon’s unemployment rate was in record low territory for all of 2017, diving to 3.6% in May of 2017, before drifting up to 4.2% by November. It is clear that the annual average unemployment rate for the whole of 2017 will be the lowest on record.

HOME SALES ACTIVITY

  • Fourth quarter home sales dropped by a very modest 1.5% compared to the same period last year, with a total of 15,314 homes sold.
  • Sales rose the fastest in Tillamook County, which saw a 76.2% increase over the fourth quarter of 2016. There were also noticeable sales increases in Cowlitz, Lincoln, Coos, Clatsop, and Crook Counties. Home sales fell the most in Jefferson, Hood River, Skamania, and Yamhill Counties.
  • Year-over-year sales rose in 12 counties, remained static in one, and dropped in the other 13.
  • Although sales were a mixed bag, I still contend that any drop in sales was due to low levels of available inventory rather than declining demand.

HOME PRICES

  • The average home price in the region rose 7% year-over-year to $363,110. This is down 1.4% from the third quarter of 2017.
  • Tillamook County led the market with the strongest annual price growth. Homes there sold for 22.5% more than a year ago.
  • All counties other than Klickitat, Clatsop, and Lincoln experienced rising prices when compared to the fourth quarter of 2016. The majority of counties saw significant,  double-digit increases.
  • This slowdown in price growth is likely due to buyers feeling priced out of the market.

DAYS ON MARKET

  • The average number of days it took to sell a home in the region dropped by 7 days from  the fourth quarter of 2016, but was up 13 days from the third quarter of this year.
  • The average time it took to sell a home in the region last quarter was 80 days.
  • Eight counties saw the length of time it took to sell a home rise compared to a year ago, but I still do not see this as troublesome. Listings are scarce during the winter months, and it’s not unusual for buyers to wait until spring in anticipation of more choices in the market.
  • Once again, homes sold the fastest in Washington and Multnomah Counties,  where it took an average of 33 and 34 days, respectively, for homes to sell.

CONCLUSIONS

The speedometer reflects the state of the region’s housing market using housing inventory, price gains, home sales, interest rates, and larger economic factors. Housing markets throughout Oregon continue to benefit greatly from the healthy regional economy.

The Oregon/Southwest Washington housing market remains fairly strong and, given that inventory levels are unlikely to increase as we head toward the traditionally busier spring market, sellers remain firmly in the driver’s seat. That said, price growth and home sales have slowed, so I am leaving the needle in the same position as last quarter.

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.

Posted on February 6, 2018 at 12:10 pm
Windermere Community Realty | Category: Finance, Market Trends, The Gardner Report

4 Thoughts about the right way to use Home Equity Loans

4 Thoughts about the right way to use Home Equity Loans

As home prices climb, an ever increasing number of home owners are taking advantage of their extra equity by getting a home equity loan or a line of credit. But accessing your extra home equity should be done carefully, and only in a narrow set of circumstances.

 

Remember about ten years ago? That was the end of the last market peak, when homeowners were yanking money from their homes as if they were endless piggy banks. They used the money to purchase nice furniture, buy new cars, and even roll it back into the home in the form of luxury, but unnecessary improvements.

When the bubble popped, many of those borrowers lost their homes as property values tanked. They couldn’t sell the home for what they owed, including both the main mortgage and equity loans.

So, what are the lessons we can learn from those unfortunate times? Just this: If you’re considering taking out a home equity loan or line of credit there are smarter ways to think about those funds. Here are four things to think about before tapping into that extra equity.

 

1.    Know what type of equity loan to get

There are two types of loan you could get:

  • A home equity loan. This allows you to get a lump of cash all at once—a loan—and then pay it back over a fixed term at a fixed interest rate, much like a mortgage or car loan.
  • A HELOC (home equity line of credit). This is a type of loan that works more like a credit card. You get an amount credit—a credit line—that you can use whenever you need it, for a limited term, such as five or 10 years, followed by a repayment period of up to 20 years. It has an adjustable rate that changes with the market.

A home equity loan makes sense if you need a large amount all at once for a specific project, such as a roof replacement.

A HELOC might make more sense if you need to borrow smaller amounts over a longer period. HELOCs carry a variable interest rate, so be careful of getting sucked in by the low starting rate. Since home mortgage rates are already nearly as low as they can go, the only direction for the rate on a HELOC to go is up, adding to your payments over time. A HELOC could end up costing you more in the long run than if you’d gotten a straight home equity loan in the first place, even if at a higher rate.

Another drawback to the HELOC is that lenders can stop or reduce the amount of your line of credit without warning if they learn of a change in your financial circumstances or a drop in your home’s value. That means you can’t always count on a HELOC to be there when you want to use it. A classic example of this is when you want to buy another home and use your HELOC funds as part of your down payment. The instant your old home goes up for sale, the HELOC may come due in full.

You also need to know how much you can get with a HELOC or equity loan. It may not be as much as you think it will be. Banks figure out what amount to give you based on adding the amount you’re seeking to the balance of your primary mortgage. If the total will retain 10% to 30% equity in the property, depending on the banks policy and your credit score, you get that amount.

For example, suppose the bank is strict and requires a cushion of 30% equity. You want a HELOC of $30,000 and your primary mortgage debt is $285,000. The total you would owe is $315,000. If the market value of the property is $400,000, then you have a pretty good chance of getting that loan, provided your credit is sound. But if the property is only worth $370,000, you may have a problem getting $30,000. You may be able, however, to get $10,000.

For that reason, it’s important to work with your lender to understand their equity cushion requirements and work with your real estate agent to understand the fair market value of your home. Then your lender can help you calculate the amount you would be eligible to borrow.

Some credit unions will let their members borrow 100% of the equity in their home, so that’s an option to consider checking into.

 

2.    Be crystal clear about what your payments will be

Of course the monthly payment you’ll have to make to repay your loan will depend on the interest rate you get, the amount you borrow, and the way you’ll pay it back. But here are a few more thoughts about that.

Since home equity loans have a fixed interest rate and term, you can use an online payment calculator to estimate your repayment plan. It’s straight forward, and easy to estimate and plan.

However, HELOCs are more difficult to predict, because the interest rate changes over time. They also can be repaid in different ways, depending on what you agree to with your lender. Most HELOCs require you to make lower, interest-only minimum payments for the first 10 years while the line of credit is open to use. But in the 11th year, the line of credit is closed, and the principal must be repaid over the next 10 to 20 years.

Of course, it’s better to pay back the loan quickly to minimize the amount you pay in interest, and to also get rid of the loan. If the market were to fall again, even slightly, you could find yourself upside down when you want to sell.

 

3.    Avoid dead end uses of your extra equity

During the housing bubble prior to 2007, consumers used home equity to pay for everything from boats and gambling to cars and kitchen renovations. When they lost jobs due to the economic downturn, they found themselves upside down in their homes, unable to sell them for what they owed. That led to foreclosures. The problems those home owners faced as the market crashed have taught us to scrutinize our reasons for using home equity.

Lenders used to think that using a HELOC to finance a car or a kitchen remodel was acceptable. But not so much these days. Now car loans are so cheap that lenders believe a home equity line doesn’t make sense for a car purchase.

The same goes for home remodeling. Now lenders think it’s a better idea to save for those things. (When did we decide it was OK to borrow and not save for things we want, anyway?) Even though home improvements can boost the value of your home, it’s seldom as huge as they amount you see on HGTV. And anyway, if you use your home equity to remodel, either you should be comfortable with the higher payment, as if you’d bought a more expensive home, or you’ll want to resell quickly to pay off the home equity line.

Using a home equity loan is an option if you plan to flip a home quickly for profit. But you’d only take that option if you absolutely understand what you’re doing. Remember, a lender could call that loan due immediately when the house goes up for sale. That could be a problem if the home doesn’t sell quickly, or there are problems with the escrow.

 

4.    When is it appropriate to use an equity loan or line of credit?

If you need cash to make essential repairs for your family’s safety or your home’s structural integrity, then home equity borrowing makes sense. These are things like fixing a worn-out roof that’s leaking and causing water damage, or faulty wiring that can start a fire, or a foundation that’s tilting, or even adding gutters to prevent further water damage.

What about college loans?

With rising college tuition and college loan borrowing costs, it might make some sense to use equity to pay your child’s tuition. The interest rates on a HELOC or equity loan can be lower than those on student loans. But, consider that a full refinance on your first mortgage might be less expensive, since first mortgage rates are cheaper than home equity rates. You’ll want to compare the interest rates and closing costs to see which option is cheaper.

However, if you’re considering putting part of a semester’s tuition on a credit card and carrying a balance, using a HELOC to manage short-term cash flow might be a much better option. You can still pay back the HELOC faster than your payment plan.

Use equity to cut your high credit card interest payments

Possibly the smartest way to use home equity is to pay off all of your high-interest credit cards. You’ll be repaying those debts using the much lower interest rates from your home equity loan or line of credit. In that case, you’ll get out of debt faster by using the money you were paying to those high interest cards, and sending it to pay your home equity line or loan instead. But you must be strict in your use of credit from that time forward, and not use your newly open credit cards as a license to start running up the balances again. The point of using your home equity in this way is to get out of debt!

You can use a debt consolidation calculator to help see how much you can save by paying off high rate cards.

 

Need more good advice about your real estate questions? Give us a call and speak with a Real Estate professional.

Posted on November 15, 2017 at 10:56 am
Windermere Community Realty | Category: Finance