Should You Sell Your Home or Tap Into Your Home Equity?

Today’s real estate market has a lot of homeowners debating whether they should cash in on their home’s appreciation by selling their home or accessing their home equity. There are several factors to consider that can help you make the decision that’s right for you. Below, explore the advantages and disadvantages of each option, as well as the most common ways to access your equity so you can answer the question Should I sell my home? with confidence. 

Selling: Pros and Cons

While the idea of downsizing to a smaller home or conversely, finding a house with more space to spread out may seem appealing in theory, the current market can make it a whole lot tougher in reality.

At the moment, the real estate market is red-hot, with a median sale price of $370,528 — an increase of more than 22% year-over-year from April 2020. More than 600,000 homes sold in the U.S. in April, a jump of 38.2% from the previous year. Mortgage rates have also dropped 0.2 points, making it more tempting than ever for prospective (and stir-crazy) buyers to lock in an offer on a new house.

Given the competitive nature of real estate, not only are houses selling for hundreds of thousands of dollars over asking price. But more and more, sellers are adding contingencies that allow them to stay in their home until they find a new property.

Often, short-term financing solutions like bridge loans can allow buyers to forego the contingencies and move more quickly, which can be a huge plus in a hot market. But it comes with risks, too. Some contingencies include forgoing home inspections, which may end in buyers’ remorse for those urgent to move into a new home.

There’s also the costs of moving to consider. If you plan on hiring movers, the average price tag is more than $1,000, depending on how much you’re taking with you. And of course, that’s not taking into account the hassle and emotional toil of the whole process.

In short, those looking to downsize or move to a location with a less competitive market have a great opportunity to cash in on a hot market, but it’s important to have a strong handle on your numbers and your moving plan.

Tapping into Your Equity: Pros and Cons

Moving isn’t the only way to make the most of your home’s growing value. You might be able to transform your current home into your dream home by tapping into your hard-earned equity to make the renovations you’ve been putting off — or build a long-desired addition.

If you decide that you want a seasonal getaway, you can also use your equity to put a down payment on a vacation home. There are a handful of different ways to get equity out of your home. Let’s explore the most common ones.

Home equity loan

One of the most common ways homeowners tap into their equity is through a home equity loan, as its fixed rate and lump sum payment often makes sense for funding home improvement projects. However, the qualification and approval process can present hurdles, as most lenders require a firm minimum credit score and stringent criteria.

HELOC

You can also open a home equity line of credit (HELOC) to access your home equity. This option offers flexibility in terms of the amount of money and how often you can borrow, but also comes with a level of unpredictability due to rate variability. It can also be risky because your lender can freeze your HELOC if your credit score or home value decreases.

Cash-out refinance

A cash-out refinance is another popular option for tapping into your equity. If you go this route, you have the chance not only to cover the cost of your renovation, but also to secure a lower interest rate on your mortgage. However, since you’re essentially paying off your mortgage with your current one, your timeline will be extended and you’ll have to pay application, closing, origination, and possibly even appraisal fees.

Learn more about when a cash-out refinance makes financial sense >>

Home equity investment

With a home equity investment, you can get a portion of your equity in cash in exchange for a percentage of your home’s future value — usually within a few weeks. You don’t have to deal with any monthly payments or added debt, and can use the funds for whatever you’d like. This solution allows you to stay in your home and bypass the challenges and extra costs associated with moving.

Ultimately, Should I sell my home or tap into my equity? is a question only you can answer based on your own financial and personal situation. The more you know about your home equity, the better decisions you can make about what to do with it. Do you know how much equity you have in your home? The Home Equity Dashboard makes it easy to find out.