If you are struggling with daily finances, yet own your property completely or in part, you may be able to take cash out of your home.
This can be a great solution to many of your financial issues, so let’s look at some of the reasons why people take cash out of their homes…
What We Mean By “Take Cash Out of Your Home”
Before jumping in, it helps to clarify what we mean by “taking cash out of your home.” This term essentially means taking ownership equity in your home, which has been built over the years, and converting it into cash.
Here’s a simplified explanation: Let’s say you are 67 years old, retired, and on a fixed income based on a pension and Social Security. You own a $1-million-dollar home that is fully paid for and have over $1 million in mutual fund investments. Technically, you’re a multi-millionaire, as your net worth is over $2 million. But you certainly don’t feel like a multi-millionaire because your money is tied up in the home and investments; it’s not liquid cash that you can take to the grocery store, the pharmacy, or the auto mechanic.
Fortunately, it’s possible to turn your home equity into cash, essentially allowing the bank to take an ownership stake in your home while you receive money that you can be used for a wide variety of expenses.
Ways to Take Cash Out of Your Home
Each way of getting cash from your home equity is different, and some are better than others. However, here are a few ways that you may be able to turn home equity into cash.
Reverse Mortgage
Known officially as a Home Equity Conversion Mortgage (HECM), these FHA-insured programs allow you to draw from your equity. You basically get a loan that is repaid when the home is sold. In many cases, the loan is repaid from the estate after the borrower passes away.
Home Equity Loan
This is a pretty basic loan that comes in a lump sum and is paid over a period of time, similar to a traditional mortgage. The loan is tied to the home, giving assurance to the lender.
Home Equity Line of Credit
Called a “HELOC,” this is a second mortgage that usually has an adjustable rate. They usually have two periods, the Draw, when you can take out money, and Repayment, when the loan is paid back.
Cash-Out Refinancing
This is a type of mortgage that can be used to pay off an existing mortgage. The loan is made for a large amount, and the borrower takes the excess in cash from the home equity.
Top Reasons for Taking Cash Out of Your Home
Home Improvements
This is one of the most common reasons for taking cash out of the home. Whether it’s necessary repairs and maintenance, such as a new roof or foundation sealing, or home upgrades such as a new wing or pool addition, these changes use equity to improve the home’s overall value, making it a smart use of your finances.
Purchase a New Home
It’s possible to use a reverse mortgage to purchase a new home. In 2008, government-authorized reverse mortgages were modified to allow homeowners with significant equity to use the program for a new house. Called “HECM for Purchase,” this option is often used by retirees or empty-nesters to purchase smaller homes that are more convenient and easier to manage. With this program, you basically take cash out of your current home and roll it directly into a new property that better suits your needs.
Living Expenses
If you are living on a fixed income, even common living expenses, such as groceries and clothing, can become a financial burden. If you own your house, you can take cash out of the home to help pay for these expenses. This can be a convenient way to make your life less stressful and end the cycle of living from payment to payment.
Health Care Costs
Many elderly people who own their home have difficulty paying for health care costs, such as insurance premiums and deductibles. Even prescriptions, doctor visits, dental work, and other cost related to overall health can be troublesome. Taking cash out of your home can help alleviate many of these burdensome expenses that often become more frequent as we age.
Pay Off Overwhelming Debt
Do you have other areas of debt that have crippling interest rates and fees? Perhaps you could take cash out of your home to pay off these expenses. Debts that you can pay off with cash from your home equity include credit cards, auto loans, business loans, or whatever else you may have in your debt load.
Purchase a Vacation Home
Maybe you simply want to enjoy your retirement years by owning your own little vacation spot. By using cash from your home equity, you could create a situation that allows you to purchase a vacation spot without harming your monthly debt-to-income ratio.
College Tuition
While it’s not stocks and bonds, there’s no doubt that education is an investment. If you have kids that need college tuition money, you may be able to turn your home’s equity into cash, helping you pay for tuition, books, housing, and all the other expenses that come with collegiate life.
Divorce Settlement
Divorces are a difficult part of life. Unfortunately, they are often an expensive part of life as well. If you are going through a settlement and plan on keeping the home, you may be able to use equity from the house to pay for legal fees. However, this can be complex because use of home equity depends on who will take possession of the home and whether or not the other party will retain ownership rights.
In-Home Care
As we discussed in our point about health care, the need for medical services usually increases as we age. Many seniors own their home and need to pay for care; care that is often best when administered in the home. By taking out cash from home equity, you can get the money you need to pay for these services.
Get Reliable Advices from a Trustworthy Professional
If you are interested in taking cash out of your home, contact San Diego Purchase Loans today. We’ll walk you through the pros and cons of each program, helping you make the right decision for your financial stability.
