Debunking 5 Common Myths About Home Equity

Don't let common myths about home equity hold you back. Learn the truth and discover ways to unlock your equity without taking on debt.

Home Equity
April 26, 2023
Debunking 5 Common Myths About Home Equity

Home equity is a valuable asset that can provide homeowners with financial flexibility and the ability to build wealth. However, there are many myths and misconceptions surrounding it that can prevent homeowners from taking full advantage of their home equity as a powerful financial tool. In this article, we'll debunk 5 common myths about home equity and provide options for unlocking it without taking on debt.

Myth #1: Home equity is the same as the value of your home.

While many people believe that home equity is the same as the value of their home, this is not true. Home equity is the difference between the current value of your home and the amount you owe on your mortgage.

To calculate your home equity, you'll need to determine the current value of your home and subtract the amount you still owe on your mortgage. For example, if your home is currently valued at $400,000 and you still owe $250,000 on your mortgage, your home equity would be $150,000 ($400,000 - $250,000). Keep in mind that your home's value can change over time, so it's a good idea to get an accurate appraisal of your home's value before making any decisions about tapping into your equity.

Myth #2: Home equity takes many years to accrue

Another common myth about home equity is that it takes many years to build up. While it's true that home equity can take time to accumulate, there are ways to accelerate the process.

According to a recent article by Bankrate, “The easiest way to increase your home’s equity is by reducing the outstanding balance on your mortgage." Factors in your control such as the size of the down payment you made on your home, making extra mortgage payments, or opting for a shorter mortgage term can help maximize your equity. If your home value increases, you’ll also build equity faster. 

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Myth #3: You can only tap into your home equity by selling and moving

Many people think that the only way to access their home equity is to sell their home and move out. While the traditional sale of your home is one way to realize the value of your equity, it's not the only way. You can also tap into your equity without moving through a home equity loan, a home equity line of credit (HELOC), or a home sale-leaseback. A home sale-leaseback is a transaction in which you sell your home to a company and then lease it back from them. This can be a good option for homeowners who need the cash but don’t want to take on debt through a long-term loan.

Myth #4: You need perfect credit to access home equity.

Some people believe that only those with perfect credit scores can access their home equity. While having good credit can help, it's not the only factor that lenders consider when deciding whether to approve you for a home equity loan or line of credit. Other factors such as your income, debt-to-income ratio, and loan-to-value ratio also come into play. Additionally, if you don't qualify for a traditional loan or line of credit, you may still be able to access your home equity through a home sale-leaseback or other alternative solutions.

Myth #5: You can't use your home equity if you still have a mortgage

Many people assume that they can't use their home equity if they still have a mortgage, but this is not accurate. As long as you have equity in your home, you can tap into it through a home equity loan, a HELOC, or a home sale-leaseback. The amount of equity you have will determine how much you can borrow, so it's important to get an accurate appraisal of your home's value.

In conclusion, home equity is a valuable asset that homeowners can use to stay financially flexible and build wealth. By debunking these common myths about home equity, we hope that you now have a better understanding of what it is and how you can tap into it. Consider working with reputable and trustworthy companies like Truehold that offer home sale-leasebacks or other solutions to help you unlock the full potential of your home equity.

Bankrate. What is Home Equity and How Can You Use It.

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Written by
The Truehold Team
Driving Innovation in Home Equity Solutions
The Truehold Team, a group of professionals in real estate, finance, technology, and senior living, is committed to providing innovative solutions for homeowners to access their equity.
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Truehold's blog is committed to delivering timely and pertinent insights in real estate and finance, purely for educational and informational purposes. Crafted by experts, our content is thoroughly reviewed to guarantee its accuracy and dependability. Although designed to enlighten and engage, our articles are not intended as financial advice and should not be the sole basis for financial decisions. Our stringent editorial practices ensure the integrity of our content, empowering our readers with valuable knowledge.

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