When you first bought your house, the last thing you may have thought about was its potential as a vehicle to fund your retirement. Your home was simply a place to share with your spouse, raise your children, and enjoy your family. It has been a humble setting for some of the best moments of your life. But now as retirement nears, you may begin to see your home not only as a place where important memories are created, but also as an important investment that grows for the future. Your home may now be one of the greatest resources you have in supporting a financially stable retirement. How much your home can help your retirement finances will depend on a very important question:
Home equity value may perhaps be one of the most significant pieces of financial information about your home, and for good reason. After all, the culmination of how much you have already paid and how much you still owe will ultimately reveal how much money you now have available to access.
While the process of purchasing a home can be complex at times, determining how to calculate home equity is relatively easy. The calculation is, in essence, subtracting any liens or remaining mortgage amount of your home from its current market value. Simply stated, the less owed on the home, the better it is for you.
If you are curious about how to determine current market value, the easiest and quickest way is to get an estimate online by visiting websites like Zillow.com, RedFin.com, or eppraisal.com. Simply type in your address and your home’s value will be estimated. However, if you are planning on refinancing in the near future, a professional appraiser will determine the exact current market value of your home during the loan process.
Professional appraisers in the real estate industry usually determine current value by evaluating the home, then studying comparable sales. Comparable sales are the recent sales of homes in your area that are comparable to your home and the land it sits on, and a good indicator of what your market value currently is. Nearby title insurance companies have what is called a “Property Profile,” which is a document that contains information about nearby properties, including sold prices. This helps real estate professionals determine comparable sales.
Once you have a better understanding of how much home equity you have in your home, you may be eligible to tap into it using home equity loans. If you qualify to access your equity, the possibilities are endless as to how you can use the funds. Common uses include:
Common opinion is that you should have an amount of cash saved that is at least three to six months of expenses for emergency purposes. So, whether you do or not, any extra amount you can add to the pot will always be helpful.
A great way to access equity and help fund retirement is through a reverse mortgage. Reverse mortgage loans, such as the government-insured Home Equity Conversion Mortgage (HECM), are designed for seniors age 62 or older to help turn a portion of their home equity into cash. HECMs offer an alternative to selling the home or taking out a second mortgage. With a reverse mortgage, you can access your home’s equity while remaining in the home without a monthly mortgage payment, as long as all loan terms are met, such as paying taxes and insurance and maintaining your home.
Home improvements are generally known to be one of the most common, and fun, ways to use home equity. After living in a home for decades, normal wear and tear will likely require you to invest in home projects. Whether it is getting new carpet, a new coat of paint, or switching to more energy efficient appliances, these improvements give you an opportunity to breathe new life into your living space. Furthermore, upgrading your home may also increase its market value and increase equity, making home improvements a good investment.
However you look at it, home equity is an invaluable asset that can be tapped to make life easier. For more information about leveraging home equity in retirement, or for help in accessing it through a reverse mortgage, contact your reverse mortgage professional today from the No. 1 reverse mortgage lender in the nation, American Advisors Group at 1-888-998-3147.
Vaughan, J.P. “How to Determine Market Value.” CreOnline.com. N.P. N.D. Web. 15 May 2015. http://www.creonline.com/how-to-determine-market-value.html