With home values high, this is how owners can benefit

The coronavirus pandemic has led many American households to reduce their expenses and prioritize saving money. A U.S. Bureau of Economic Analysis report says the personal savings rate is higher than pre-pandemic levels due to spending shifts and payment assistance programs for basic necessities like housing.

There is also a real estate boom as people move to dream destinations and work remotely, escape high cost-of-living areas or live closer to family.

Nationwide existing home sales and median sale prices are at decade-high levels, according to the St. Louis Federal Reserve. And historically low mortgage and mortgage refinance rates are also fueling the boom.

Homeowners can take advantage of the low mortgage rates to squeeze more value from their home equity or afford a better dwelling. Below are a few ways they can benefit:

1. A cash-out refinance
2. Sell and downsize
3. An investment for the future

WHAT WILL HAPPEN TO HOME PRICES IN 2021 — HOW BUYERS AND SELLERS CAN PREPARE

1. A cash-out refinance

A cash-out mortgage refinance allows homeowners to use their home equity for things like paying off credit card debt. This loan type may have a lower interest rate than a debt consolidation loan and more homeowners may qualify thanks to rising property values.

Applicants with lower debt ratios and a clean credit history can qualify for the lowest rates and fees for the life of the loan. You should only borrow the home equity you need to keep loan costs and loan balances as low as possible.

Additionally, the closing costs for a cash-out refinance can be higher than for conventional loans.

Loan eligibility differs by the type of lender, as mortgage companies are stricter than federal lenders. Online lenders may require lower debt ratios, along with a minimum 680 credit score for a cash-out refinance. However, they may only require 620 for a traditional refinance.

Applicants with lower credit scores may have an easier time qualifying with an FHA or VA cash-out mortgage program, thanks to several loan benefits that private mortgage companies don’t offer.

PROS AND CONS OF A CASH-OUT MORTGAGE REFINANCE

2. Sell and downsize

If you’re planning on moving into a smaller home in the near future, consider doing it now. Selling your home while property values remain high can maximize your profit so you have more cash to spend on your next residence.

Downsizing can also reduce your monthly living expenses, including lower home insurance premiums, property taxes and utility costs.

If you need financing, today’s favorable mortgage market provides cheaper loan options that may not be available if mortgage rates increase.

You should also consider making a sufficient down payment and avoiding private mortgage insurance to minimize closing costs and ultimately get a smaller monthly payment.

SELLING YOUR HOME? CONSIDER MAKING THESE IMPROVEMENTS FIRST

3. An investment for the future

Real estate values typically increase long-term and effortlessly boost your total net worth. Each monthly mortgage payment increases your available home equity and reduces the remaining loan balance.

If you already live in your perfect home, you may already have an excellent long-term investment. If you have your mortgage insured with private mortgage insurance, a good first step is making extra payments to cancel this add-on fee.

Keeping your monthly housing costs low makes it easier to pay off your mortgage quickly and own your home debt-free.

Today could be a great time to see if you qualify for the best loan terms to help minimize your homeownership costs. The best loan terms are important for homebuyers who plan on living in the home for the entire repayment term of 15 or 30 years. A mortgage broker can help a first-time homebuyer or an existing owner find the best home loan rates by length of mortgage.

5 MYTHS ABOUT CREDIT SCORES FOR FIRST-TIME HOME BUYERS

Final thoughts

Today’s robust real estate market offers an excellent opportunity for homeowners to benefit from rising home values and lower interest rates. There are several ways to improve their financial situation with historically low rates that make home equity more valuable than usual.

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