How to Get the Equity Out of Your Home: Comparing the Options

Cash-out refinancing, lines of credit, home loans, and more... When it comes to unlocking your home equity, the options can seem overwhelming. How do you determine which is right for you?

The average U.S. homeowner has $153,000 in “tappable” home equity: money that could be used to cover medical bills, retirement costs, debt repayments, and more. But how do you access these funds? 

Until recently, there have been three main methods for claiming your home’s equity:

• Cash-out refinancing
• A home equity line of credit (HELOC)
• A home equity loan

 Truehold's Sale-Leaseback adds a fourth option for you to consider.

As you weigh which choice is best for you, here are a few main questions to keep in mind: 

• What’s your eligibility?
• How much of your equity are you looking to unlock? 
• What are your initial fees and ongoing financial obligations?
• How does the home equity unlock method match your use of the funds?
  

Cash-Out Refinancing

What is it? 

With a cash-out refinance loan, you would swap your current mortgage with a new home loan that's more than what you currently owe. The difference between the old and new mortgage goes to you in cash.

Who qualifies? 

• You own at least 20% of your home equity. 
• You have a sufficient credit score — lenders typically expect a 580 minimum credit score.
• You have sufficient income — generally, your monthly home payments must not exceed 30% of your gross monthly income.

How much equity can you unlock? 

You can access up to 80% of your home’s equity.

What are the initial fees and ongoing obligations? 

• Closing costs, up to 5%, are typically higher than an HELOC or home equity loan. 
• There’s a 4%-4.5% interest rate on your loan. 
• You'll make a monthly payment covering principal and interest.

When do homeowners typically cash-out refinance? 

• Your home’s value has gone up. This will allow you to access a greater amount of cash.
• Mortgage rates are favorable. This may be a good opportunity for a lower interest rate.
• Using the cash for home improvement plans. If your home increases in value, you may become eligible for a tax deduction on your cash-out refi interest payments.
  

Home Equity Line of Credit (HELOC)

What is it? 

A home equity line of credit works in the same way as a credit card, but instead of unsecured debt, your debt is secured by the equity of your home. HELOCs are divided into two parts: the draw period and the repayment period.

During the draw period, usually 10 years, you can withdraw money up to your established credit limit. After 10 years, the final amount you've withdrawn becomes a loan to be repaid with interest. You have the repayment period, usually 20 years, to pay the loan amount off.

Who qualifies? 

• You own at least 15%-20% of your home.
• You have a sufficient credit score — a 600 minimum credit score is expected.
• You have a low debt to income ratio - a lender will typically accept DTI ratios up to 43%. 

How much equity can you unlock? 

You can access up to 85% of your home equity.

What are the initial fees and ongoing obligations? 

• Interest rates within your draw period are subject to change, and, depending on external economic conditions, can shift between 3%-21%.
• You’ll pay monthly minimum credit payments which, depending on the bank, can represent only the monthly interest or principal and interest. 
• After your draw period is over, you'll have the repayment period to pay off your loan balance.

When do homeowners typically take out a HELOC? 

• You’re unsure exactly how much money you need to borrow. A HELOC allows you the security and flexibility to determine how much you need, when you need it.
• You need access to cash periodically over a span of time. You can borrow from a HELOC throughout the entire 10-year draw period.
• You have a high loan to value ratio. As long as you have a high credit score and low DTI ratios, lenders typically accept LTV ratios of up to 95%, higher than cash-out refinancing or home equity loans.

Home Equity Loan

What is it? 

Through a home equity loan, you can access your home equity and receive a lump sum payment upfront. You’ll then pay off your loan through monthly installments that include a fixed interest rate. 

Who qualifies? 

• You own at least 15%-20% of your home.
• You can prove through income verification that you’ll be able to pay your monthly installments. 
• You have a sufficient credit score — a 620-680 minimum credit score is expected, higher than cash-out refinancing or an HELOC.
• You have a low debt to income ratio — lenders will typically accept DTI ratios of 43% or lower. 

How much equity can you unlock? 

You can access up to 85% of your home equity. 

What are the initial fees and ongoing obligations? 

• Closing costs range between 2%-5%. 
• There’s a 6%-14% interest rate on your loan. 
• You'll make monthly interest and principal payments over the loan term, typically 30 years.
• There are often prepayment penalties (anywhere between 0.1%-20% of the loan) if you want to pay off your loan early. 

When do homeowners typically take out a home equity loan? 

• You know how much money you need and when you need it. This option is great for large, one time expenses.
• You want to save money through debt consolidation. You can use the secured loan to pay off unsecured debts, then make the loan repayments with a lower, fixed interest rate.
• You plan to use the cash for home improvements. If your home increases in value, you may become eligible for a tax deduction for the amount of interest.

Truehold’s Sale-Leaseback

What is it? 

Truehold's Sale-Leaseback consists of two simple transactions: a house sale and a lease agreement. By selling your home, you unlock all of your home’s equity in cash. 

Unlike a regular sale, however, you’re able to stay in your home as long as you like as a monthly renter. Truehold takes care of major home repairs, property tax, and insurance for you.

Who qualifies? 

Truehold typically works with owners of single-family homes who have enough equity and liquid savings to cover years of rent or a high credit score. Get in touch to learn more and decide if we’re the right fit for you!

How much equity can you unlock? 

You get all of your home equity upfront and in cash. To understand why Truehold is a better option compared to traditional home equity loans, visit our sale leaseback and home equity calculator. It provides a comprehensive comparison of how much equity you can get with each option, associated fees, and more.

What are the initial fees and ongoing obligations? 

• There’s a 5%-6% real estate commission. 
• Monthly rent is set at a competitive price. 

When do homeowners typically reach out to Truehold? 

• You don’t want to take out a loan. Truehold's Sale-Leaseback is not a loan or debt. We purchase your home, and you access all your equity as soon as the transaction is complete.
• You want to unlock all of your home equity. Unlike other options, you can unlock your home equity, all at once. Use it to pay off debt, diversify investments, cover healthcare costs, etc. 
• You don’t want to pass debt along to your children or grandchildren. Since a sale-leaseback requires borrowing no money, you won’t leave your family with a financial burden if something happens to you.
• You want to simplify life at home. By paying only for utilities and monthly rent, you consolidate housing expenses and decrease maintenance effort. 
  

So, which option is best for you? 

• A larger loan through cash-out refinancing? 
• A monthly credit limit with a draw and repayment period with a home equity line of credit? 
• A second mortgage through a home equity loan? 
• Or all of your home’s equity and maintenance coverage in exchange for monthly rent through Truehold's Sale-Leaseback?

If you’re interested in Truehold's Sale-Leaseback option, our team will work with you to determine qualification by reviewing your credit score and your holistic financial health. 

Please give us a call at (314) 353-9757 and one of our advisors will get in touch to discuss if Truehold is the best option for you. We’d love to help you unlock your equity and stay in your home.

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