If you’re a homeowner looking to upgrade, downsize, or simply find a home that better meets your lifestyle, home equity may be a valuable asset to help make that move possible. In this guide, we’ll cover what home equity is and how it may support your next home purchase! Always consult a financial advisor and/or tax advisor before you tap into any home equity.
What is Home Equity?
Home equity is the difference between your home’s current market value and the outstanding balance of your mortgage. In other words, it’s the portion of your home that you truly “own.” Home equity may build over time as you pay down your mortgage and if your home appreciates in value. For example, if your home is valued at $400,000 and you owe $250,000 on your mortgage, you may have $150,000 in home equity. This amount may vary depending on the market you are in and the actual sales price of your home.
Whether it is upsizing, downsizing or just finding a better fit, a common way to leverage home equity is by selling your current home and using the proceeds as a down payment on a new one. This approach allows you to apply the equity you may have built toward your next purchase!
What to Consider Before Using Your Home Equity
While tapping into your home equity can be a smart strategy, you should consult a financial professional before deciding if tapping into your home equity makes sense for you and your financial goals. Here are a few factors you may want to consider:
- Evaluate your current finances. Taking into consideration your income stability, existing debts and future financial goals is essential when deciding if now is the right time to buy a new home.
- Consider the market conditions. Working with an experienced real estate agent can help you assess the current market and determine the best timing and approach to your move.
- Assess your current home equity. Consider getting a professional home valuation to get an estimated value of your current home. A valuation can clarify how much equity you may have and help you determine if selling now makes sense. The cost of obtaining the value of your property may vary depending on the type of valuation you are obtaining. Additionally, such valuation may not be indicative of your actual equity depending your actual sales price.
By understanding your home equity, you may leverage this valuable asset to make your next dream home a reality. Whether you’re looking for more space, less maintenance, or simply just a change of scenery, your home equity can help you reach that goal!
Ready to start your next homebuying journey? Learn more about the Pulte Mortgage process!
