Tapping funds when you’re home-equity rich but cash poor
Whether they have been furloughed temporarily, laid off or are dealing with a pay cut due to the coronavirus pandemic, many Americans are looking for cash to pay their bills. Homeowners may be looking to their home equity as a source of funds.
Home equity, which refers to the difference between your mortgage balance and the value of your home, is a major source of wealth for many Americans. Approximately one in four (14 1/2 million) American homeowners were considered “equity-rich” during the first quarter of 2020, meaning their mortgage balance was less than 50 percent of their estimated home value, according to ATTOM Data Solutions, an Irvine, Calif.-based property data provider.
“As a country, we’re equity rich, but the tightened credit box has locked many people out of the ability to access that equity,” says Nicole Rueth, producing branch manager for Fairway Independent Mortgage Corp. in Denver.
Collectively, Americans had $6.2 trillion in “tappable equity” during the fourth quarter of 2019, which refers to the amount available to borrow before hitting a maximum of 80 percent of the home’s value, according to Black Knight, a mortgage data provider. The average amount of available equity was $119,000 during that quarter. Many lenders cap the amount homeowners can borrow with a first mortgage and any additional loan at 80 percent of the home’s value.
But having home equity isn’t the same as being able to convert that value into cash, especially if you have been furloughed or are ...
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