Considering the prospect of selling your property? In light of today’s mortgage rates, you may be contemplating whether this is a prudent decision.
Many homeowners are understandably hesitant to sell, concerned about potentially assuming a higher mortgage rate on their next residence. It’s crucial to acknowledge that while rates are currently elevated, so is the level of home equity.
To comprehend how equity increases over time, Bankrate offers a concise explanation:
“Home equity is the portion of your home that you’ve paid off and own outright. It’s the difference between what the home is worth and how much is still owed on your mortgage. As your home’s value increases over the long term and you pay down the principal on the mortgage, your equity stake grows.”
So, how much equity do homeowners currently possess? Recently, the rate at which your equity accumulates may surprise you. To place the average homeowner’s equity into perspective, CoreLogic states: “The average U.S. homeowner now has about $290,000 in equity.”
This substantial figure is attributed to the significant rise in home prices over the past few years, which has expedited the accumulation of your equity. Although the market is showing signs of stabilization, demand for homes continues to outpace supply, propelling home prices upward once more. Meaning prices today are quite likely to be lower than prices next year.
Data from the Federal Housing Finance Agency (FHFA), the Census, and ATTOM, a property data provider, indicates that nearly two-thirds (68.7%) of homeowners have either fully paid off their mortgages or possess at least 50% equity. This substantial equity position is currently held by almost 70% of homeowners.
The Role of Equity in Alleviating Affordability Concerns
In light of today’s affordability challenges, your accrued equity can significantly impact your decision to relocate. Once you sell your property, you can utilize the equity you’ve built to facilitate the purchase of your next home. Here’s how:
1. Become an all-cash buyer: If you have resided in your current home for an extended period, you may have accumulated sufficient equity to acquire a new residence without the need for a loan. In such a scenario, you can circumvent concerns about borrowing money or fretting over mortgage rates. As highlighted by the National Association of Realtors (NAR): “These all-cash home buyers are happily avoiding the higher mortgage interest rates.”
2. Increase your down payment: Your equity can be directed toward your upcoming down payment. It may even enable you to make a more substantial down payment, reducing the amount you need to borrow and mitigating the impact of today’s rates. As explained by Experian: “Increasing your down payment lowers your principal loan amount and, consequently, your loan-to-value ratio, which could lead to a lower interest rate offer from your lender.”
To Sum it Up
If you’re contemplating a move, the equity you’ve amassed can wield substantial influence over your ability to purchase your next home, especially in the present environment. For the full picture on your current equity and to explore strategies for leveraging it into your next home purchase, contact one of our outstanding Kentwood Real Estate brokers. We service the Front Range of Colorado from Colorado Springs to Denver to Boulder and up through Fort Collins into Northern Colorado.