Read Our Blog Visit Green Living

HHHunt Rent vs Buy Blog

RSS -- Grab HHHunt RSS Feed

The Benefits of Home Equity are Overrated

11 Oct 2012

Posted by Joseph Coupal

If you’ve ever thought about buying a home, you’ve heard the song and dance on home equity plenty of times. While home ownership is a good financial decision for some, the benefits of home equity are frequently overrated by homeownership proponents.

The Housing Market Has Risks

For generations, home equity was considered the holy grail of wealth accumulation. In 2007, the median family held nearly $100,000 in home equity. Home equity was responsible for nearly three quarters of family wealth. However, that’s all in the past.

By 2010, the Recession ravaged median family wealth. Most families took their losses from only one of the many assets commonly held: home equity. Home equity plunged nearly 40% and was responsible for creating the lowest levels of middle class wealth in the last 10 years.

For decades, Americans assumed that home prices were a safe investment for their wealth, but the recent recession has disproven this assumption.

Home Equity is Just a Number on a Piece of Paper

There are two ways you can get value for your home equity. You can sell your home or you can leverage your equity for a loan. In both cases, the amount of money you get converting equity to cash is much less than the number you calculate on a piece of paper.

Selling your home comes with a number of selling costs: commission, plus legal fees and potential selling concessions.

Borrowing against your equity often comes with bank fees and will certainly carry interest costs.

Home equity looks nice when you subtract the selling price of your home from the principal you owe on your mortgage, but the real value of the equity is far less.

Converting Home Equity to Cash Takes Time - Realistically, cashing in on equity takes time, and that means lots of hidden costs. If you were to move out before selling your home, you’d be losing money with every property tax payment. Getting value for your equity is rarely hassle-free.

Home Equity Requires Maintenance - If you want your equity to hold value, you’ll need to update old fixtures and repair your home when things wear out or break. Many homeowners let their curb appeal slide or allow their interior to become outdated. Sellers are later shocked when prospective buyers are able to bid far lower than homeowners expect.

Your Equity is Sensitive to Your Neighbors - Is your neighbor’s house falling apart? How many homes on your street are in foreclosure? None of these questions may seem related to you, but they are related to the value of your home.

For information on Buying a home or renting an apartment visit HHHunt Rent vs Buy.

US News

Get e-mail notifications of new blog posts!
Enter email address below:

Delivered by FeedBurner