How to Use Your House to Free Up Cash
Need to free up cash? Your house may be able to help. Here are some of the fastest and easiest ways to use your house to find some extra money.
A home is an investment. When you purchase it, you hope it goes up in value, allowing you to make a profit when it’s time to sell. It’s also a long-term investment. Your money gets tied up in the house, making it difficult to free up cash to use for something else.
But having liquid cash becomes just as important as an investment when certain needs arise. Luckily, having a house comes in handy here. There are a few ways in which you can get cash out of your house without having to sell your home. As a homeowner, these options let you keep your house while tapping some of the value out of it to cover other demands on your bank account. Here are seven of the best ways to free up cash using your house.
1. Reverse mortgage
Only available to homeowners 62 or older, a reverse mortgage lets you access cash through your home’s equity. Setting eligibility at a higher age gives you a better chance of having a solid amount of money already invested in your home. In fact, in the first quarter of 2019 alone, homeowners aged 62 and older held $7.14 trillion in home equity.
You’re paid out based on the equity you currently have in your home. The great thing about this option is you don’t make any payments due until you move, sell the property, or someone inherits your home. The negative aspect of a reverse mortgage is that what you owe back increases over time. You also traditionally have to pay a two percent fee up front besides closing costs.
Learn more: How Does a Reverse Mortgage Work?
2. Home equity conversion mortgage saver (HECM)
This is a newer version of the reverse mortgage that attempts to decrease the costs associated with this option. It helps make a reverse mortgage more attractive and accessible. While the amount you can borrow is smaller, the out-of-pocket costs of an HECM are also much lower. Instead of a two percent premium, you’ll only pay .01 percent of your property’s value or HUD’s loan limit.
This type of reverse mortgage is often a better option of freeing up cash for the 62 and older crowd. It allows you to tap into equity from your home while still being able to save money for any unexpected expenses that may appear later in life.
Check out: 10 Cities with the Most Reverse Mortgages
3. Home equity line of credit (HELOC)
While there are many ways to get a line of credit for large expenses, this particular type gets secured against the value of your property. One of the primary lender qualifications in this instance is for the borrower to have a regular source of income. This means, in order to qualify for this method of getting cash out of your home, you most likely need to work full time. You’ll also have to make monthly payments, so having a steady income can help keep you on budget.
This option is a bit more volatile because you have to begin paying it off almost as soon as you borrow. You also run the risk of having your home equity line frozen if the equity you have in your home falls too low as a result of home value or other market issues.
Also consider: Guide to Downsizing for Retirees
4. Cash out refinance
A cash out refi is like getting a home equity line of credit as you refinance. It’s a double whammy where you refinance your mortgage and borrow money at the same time. This means instead of writing a huge check at closing, you get money back. Refinancing allows you to roll the amount you borrow plus closing costs into a new mortgage.
Depending on the loan term and interest rates, your monthly mortgage payments will change. They might go up as you pay off the costs of refinancing and the money you borrowed. But if you time it right, this strategy will allow your to lower your interest rate and free up extra cash. It can be a cost-effective option for raising funds since you have the entire life of your mortgage, typically 30 years, to pay off what you borrow.
This unique option for getting cash out of your home requires you to have a specific percentage of equity left in your home after you borrow money. Most lenders require you to maintain at least 20 percent equity after refinancing.
Read more: 5 Mortgage Trends to Watch
5. Second mortgage
Also allowing you to tap into the equity you have in your home is a second mortgage. This is when you take a lien out against a home that’s already mortgaged. The lien goes against the portion of your home that’s already paid off. It carries with it the 20 percent rule, like a cash out refinance, so you must still have that much equity in your home afterward. Other requirements can include a minimum credit score and a specific debt-to-income ratio.
Adding an entirely new mortgage to your monthly financial obligations can greatly impact your budget. You go from making one mortgage payment a month to two.
Further reading: Is Your Home Your Secret Retirement Savings?
6. Shared equity financing
Another unique and increasingly common way homeowners can free up cash with their house is through shared equity financing agreements. A shared-equity mortgage or a shared appreciation mortgage is a type of financing arrangement in which more than one party acquires ownership interest in a property. One party pays to live on the property, while the other party pays to have an investment.
Though each shared equity arrangement works a bit differently, the idea is roughly the same. One party can live in the house for a reduced mortgage payment or in exchange for cash. Meanwhile, the other party, sometimes called the equity partner, receives some of the home’s equity, including capital appreciation.
7. Rent or home share
If messing with your finances to get cash out of your home doesn’t seem appealing, there are other easy ways to use your house for extra income. As long as you’re willing to allow others into your home, that is. If you’re okay moving, you can always rent your home. With renters, you can potentially charge more in rent than your mortgage payment. This excess means extra income. You will, however, have to become a landlord, which is not something everyone has the patience to do.
Another option is to stay in your home and rent out a room or two. If you have the extra space, and don’t mind a roommate, having a home share means supplementary income from your house. Renting out spare bedrooms can mean you’re able to collect enough rent to cover your mortgage and utilities. The downside is you’ll have to share common areas, like the kitchen, with possible strangers.
You can also get creative when thinking about renting. You don’t always have to rent out a space inside your home. If you live in an area where parking is hard to find, consider renting out your driveway during working hours or on the weekends.
Related content: Should You Sell Your Home to Fund Your Business?
There is cash to be had from your home
There are many options for freeing up cash from your home, while still owning it. However, to get the largest sum of money, with no strings attached, you may want to sell your house. Downsizing is a great way to make the cash you get from your current home go a long way. Moving to a more affordable location is also a solid strategy.
To get cash quickly from a home sale, consider working with an off-market buyer through Sundae’s marketplace. At Sundae, our goal is to empower the homeowner with everything they need to get the highest off-market price for their home. We are incentivized to get you the highest possible offer.