If you own a home, you probably realize you might have some precious equity, especially since home prices have increased for years at a time.
Put simply, home equity will be the difference between your property value plus your existing lien(s). Therefore if your home is worth $500,000 today along with your mortgage balance is $300,000, you have got $200,000 in equity.
Those interested in getting their hands on those funds can either do a cash-out refinance, get a home equity loan/line, or sell for a tidy profit.
Not as long ago, the opposite was true. Many millions of homeowners were in negative equity positions, meaning they owed on their mortgages than their properties were worth.
Using our example from above, they may have owed $350,000 when the property was worth just $300,000.
For they will, a refinance was only possible using special government programs like HARP, that have been borne out of the crisis, and no cash out was possible. All they can do was lower their rate and/or switch from an ARM to your fixed-rate loan.
What a Difference a Few Years Make
- Real estate investment isn’t short-term
- It might take time to see a return against your investment
- Those who stick with it
- Will be rewarded over time
Instead of headlines screaming about negative equity and underwater homeowners, we\’re now discovering the many millions who are \”equity rich.\”
And exactly what does it mean to be equity rich, you ask? Well, it means your current loan-to-value ratio is 50% or lower, this depending on ATTOM Data Solutions, formerly named RealtyTrac.
In a recent release, they noted that 13,125,367 U.S. homeowners were equity rich since the end of the third quarter, which represents 23.4% of all homeowners which includes a mortgage.
This prized population has increased more than 2.6 million from a year ago, and probably increased from last week thanks to rapidly rising house values.
When ATTOM first began tracking the equity rich in the fourth quarter of 2013, just 18.5% of the population with a mortgage were in the esteemed category.
That equated just to over nine million with LTVs of 50% or less. It\’s since marched higher and higher and is also close to reaching 25%.
It\’s unclear exactly what the historic norm is or what are the recent high is, but a combination of longer tenures and rising house values have been good to homeowners.
Indeed, people that sold in the third quarter had owned their properties for an average of 7.94 years, a fresh high in ATTOM\’s database and markedly longer than the 4.26 year average pre-recession.
What\’s Delicious About Being Equity Rich?
- It means you\’ve wealth
- That can be tapped into
- Via a HELOC or cash-out refinance
- It offers you lots of options
The beauty of being equity rich may be the increased flexibility the homeowner enjoys.
For one, they\’ve amassed numerous wealth through home price appreciation and/or the forced saving of handing over down the mortgage over time.
This means they also have a nice nest egg for the future as long as they sell or downsize. Additionally, this would mean they\’re closer to paying off the mortgage in whole, assuming they\’re close to retirement and wish to avoid steep monthly payments once over a fixed income.
Perhaps just as important, they have got options when it comes to getting another mortgage. At 50% LTV or less, they will get the best pricing available, all else being equal.
So if they wish to refinance, they can do so with relative ease and procure the lowest mortgage rate available.
And as noted, they can tap into that equity should they need/want the cash for something else. The equity cushion doubles for a subsequent home purchase, with a move-up buy where a large down payment is needed.
In summary, it\’s good being equity rich, though not every person is so gung ho about paying down the mortgage early.
I also needs to point out that over six million remain seriously underwater (LTVs of 125% or more), which represents 10.8% of all homeowners which has a mortgage.
The good news is that\’s 854,000 less homeowners than this past year, and well below the peak of 12.8 million (28.6% of all the homeowners with a mortgage) from the second quarter of 2012.
Top 10 Equity Rich Metros Nationwide
San Jose (55.7%)
S . f . (49.8%)
Los Angeles (38.2%)
Pittsburgh (34.Five %)
San Diego (33.0%)
Oxnard-Thousand Oaks-Ventura (32.7%)