Equity is a word that many people seem to not completely understand. Equity is value in something, most commonly in Real Estate. Many seem to feel it’s like a “free” savings account. Where you are not actively adding to it, equity is more like interest, you have to let it grow. Unfortunately, I see a lot of people that have a habit of refinancing their homes and whatever the home appraises for is the amount that they borrow. The problem with that is that appraisals done for a refinance are not exactly the same as appraisals done for a purchase/sale. I’m not entirely sure why that is, but I have definitely seen a difference in values on these. For example say you purchased your home 3 years ago for $150,000. You decide that you can get a lower payment with a slightly lower rate so you refinance and the house appraises for $180,000 so that is your new loan amount. You have effectively taken all of your equity out of the house when you did that. Say now it’s 2 years after you refinanced and now you need to sell, you speak to your trusted Real Estate Professional and they tell you that the market indicates that you can only sell it for $170,000 and you owe that much, maybe a little more. There is no money to cover the cost of your REALTOR, or any of your closing costs, you have to bring money to the table.
Let’s try a different scenario, say when you refinanced the home you only refinanced enough to cover your closing costs and you didn’t take any extra money out, so you only refinanced $160,000. Now it’s 2 years after you refinanced and you can list it for $170,000. That should get you to a breakeven point. Or you would only have to bring a few hundred dollars to closing instead of several thousand.
Try to resist the urge to take all you can out of your biggest asset. Let it be the investment that it needs to be. As long as you maintain the property, keep it in good condition you will be ahead of the game.
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Ellen Hough, Jacksonville NC Real Estate , specializing in guiding home buyers and sellers through the home buying and selling process. Working at EXIT Independence Realty, call or text me @ 910-330-6103 (Cell)