Stop Losing Home Equity!

Stop Losing Home Equity-150x150Losing home equity can and probably will result in a series of serious problems for home owners. The equity in your home represents the part of your home that you actually own. If you lose equity in your home, you can recover it, but it will be more difficult than it was to build it in the first place.

When making monthly mortgage payments, a part of that payment goes towards the loan balance, increasing the equity in your home. At first, a large part of your payment will go towards the interest, but, as time passes, the portion of the payment that goes towards the principal increases, making your equity increase much faster. Home equity is considered an asset, it’s a part of your net worth, and you can use it if you need. Home equity can be used to pay for a second home, medical bills, education, or even retirement.

How Are You Losing Home Equity? What Can You Do About It?

Losing equity can be the result of a bad decision or the result of something that you can’t control. Either way, losing the equity in your home can even result in having to sell your home. Home equity is a powerful financial resource as long as it is used properly. Here’s how you risk equity in your home and a few ways of dealing with these issues:

  • Making major changes to the structure of your home. Transforming a basement into one or two rooms, two bedrooms into one bedroom, the garage into a room, or other major changes might seem like good ideas at the time, and you probably have a good reason for making these changes. Unfortunately, major modifications to a home’s structure or layout can possibly lead to a decrease in your home equity. Home improvement projects must be chosen very carefully if you wish to avoid a sudden decrease in the equity in your home.
  • Doing a cash-out refinance. This type of refinancing will increase the amount that you owe, and you risk ending up owing more than your home is worth. This means that the equity in your home will be reduced drastically, plus you will be paying interest for the cash that you took out.
  • Taking out a home equity loan. Home equity loans use the equity in your home as collateral. The upside is that, if you take out a home equity loan to remodel a kitchen or the bathrooms, the equity in your home may be replaced. Otherwise, your equity will decrease, while the amount that you need to pay back with interest will increase.
  • Not taking care of your home. Parts of your home like the roof and even appliances such as your air conditioner and heater don’t last forever. Not repairing them or replacing them, if needed, will result in a home equity decrease. Part of being a home owner means that you have to maintain your home and make necessary repairs, not only to live comfortably, but to also avoid damaging the equity in your home.
  • Economic crisis. This reason for losing equity is out of your hands and hard to predict, but, even if you are not affected by an economic crisis, the equity in your home will be. The recent housing market crash has resulted in millions of foreclosures, so if you live in a neighborhood where a lot of homes go into foreclosure, the value of your home will have to suffer.
  • Your neighborhood changes. Neighborhoods change all the time, especially after a recession. Your neighborhood might become more accessible to criminals, which will determine many people to move to different areas, and home prices to drop. Unfortunately, there is little you can do in this situation, and the equity in your home will most likely drop, as a result.

Losing home equity can be avoided by not making bad decisions and by resolving the issues that you have power over. In certain situations, there is little that you can do to avoid a drop in your home equity, but even these situations are somewhat preventable. You can recover from a loss in home equity, but it’s always better to prevent a loss than having to build equity again.

Financing Home Improvement- Which Ways are Best?

Financing Home Improvement-Which Ways are Best- 150x150Nowadays, financing a home improvement project can be done in several ways, all of which have their advantages and disadvantages. Which one is the best for you usually depends on several factors, such as the project’s cost, how much time the project will take, how much equity you have in your home and many more. Deciding which type of financing is best is entirely up to you. This article will describe several ways in which you can do it and give insight into which ways are often the best for most situations.

First of all, when starting an improvement project, the first thing that you need to do is create a realistic budget that you should strictly follow. Everything that you are planning for your home improvement projects should be stuck to once the budget is set. Changing your plans half way through can get very expensive and you may find yourself unable to finish your project. Also, when setting a budget, always overestimate costs. In very rare cases, you can end up having to spend less than you planned, but most of the time you will actually have to spend more. Having a budget will help you find out exactly how much money you need and ensure that the project is finished on time and without any major issues.

Whether you are building a garage or a pool, installing new appliances, or simply remodeling a kitchen or a bathroom, unless you have a large amount of money saved up, you are going to need financing. Find out what your budget is and how long the improvement project will take before looking at financing options. Here are the most commonly used methods of financing a home improvement project.

Cash

The most obvious choice is also the cheapest choice. Taking out a loan means that you will be paying interest and fees, making your home improvement project much more expensive. Whether you have it saved up, borrowed it from a friend or family member, cash will always be the cheapest way to finance a remodeling project. Also, because you are not using your home as collateral, you also avoid the risk of losing your home to foreclosure.

Credit Cards

With credit cards you avoid paying closing costs, as you would if you took out a loan, but interest rates will be much higher. Home improvement projects that only cost a few thousands of dollars are easy to finance with one or more credit cards, but you should only use this option when you are able to repay the borrowed money in a few months.

Personal Loans

Unlike mortgage loans, personal loans that are unsecured do not use your home as collateral. This means that, if you fail to repay what you have borrowed, your home won’t be at risk for foreclosure. Banks only offer unsecured personal loans for small amounts of money and the qualification guidelines are strict. Other lenders offer payday loans, which have very high interest rates.

Home Equity Loan

With a home equity loan you use your house as collateral, just like you would on a primary mortgage. The interest rate on a home equity loan is fixed and also tax deductible. Another downside besides having to pay an interest is that home equity loans require you to pay closing costs. Failing to repay the money, you risk losing your home to foreclosure.

Finding the perfect solution when it comes to financing a home improvement project can be difficult. Your best bet is to carefully assess your financial situation, determine how much money you have to spend, and take it from there. The best option would be finding cash for the project, but, if that’s not possible, there are a number of other ways in which you can finance your home improvement project.