Sitting on more equity than ever?

By this time everyone knows 2020 and 2021 was the largest real estate equity surge on record. With home prices hitting all-time highs and mortgage rates hitting all time lows, the bulk of attention in real estate was directly pointed at purchase and rate & term mortgage loans. Now that we are facing a new landscape in 2022 there are data points which can’t be ignored. Namely demand has waned a bit, appreciation is cooling, rates are increasing, affordability is under pressure. Despite these things all coming to ahead at the same time it interestingly creates new opportunities for homeowners who did not partake in the moving frenzy of the past 24 months.  Here’s 4 things you can do with your historically high home equity in 2022.

1) You can do absolutely nothing
It is true. You can do absolutely nothing and just sit on the home equity you currently enjoy. The real estate market will ebb and flow as it does, and you can enjoy the ride while accepting whatever outcome that generates over the course of time.
While this is a possibility it does have some drawbacks which might become obvious below. If doing nothing creates the best financial outcome for your long-term needs within the context of your future financial goals, then happily do nothing.

2) Debt Consolidation cash out refinance
Look we know it’s uncomfortable to talk about and get honest about our personal debts, especially as inflation and price increases have ramped up pressures on affordability across the board for consumers. For some of you reading this, who are seeking financial relief from pesky (and growing) credit card balances or home equity lines of credit, it might be time for you to put some of your home equity to work. The local real estate market appreciation has created equity gains for most homeowners in San Diego County. With such large amounts of home equity available to be tapped into, a cash out refinance can be a logical consideration to wipe out those credit balances thus eliminating your monthly payments, and effectively “rolling them in” to your monthly mortgage payment. While it is fairly easy to measure the mathematical impact of this on paper, it is also important to remember that repeating this same solution time and time again may not be possible. Equity today is equity today, use it while you can.

3) Home Improvement cash out refinance
Maybe you decided to hunker down and stay put in your home in 2020 & 2021. Maybe you already refinanced into a lower rate during those years. There’s still good news in this article for you as well. Provided you have made your first 6 mortgage payments, you may be eligible for a cash out refinance to upgrade or remodel your home. Chula Vista, and San Diego County at large, experienced some of the highest house price appreciation in all the country over the past 24 months. (Second only to Phoenix and Las Vegas, and edging out other markets like Los Angeles, Miami, Denver, Houston to name a few). Even if your kitchen, flooring, and décor is a bit outdated, the house itself will have experience a great increase of value because of the surrounding homes changing hands at higher prices. This boils down to you being able to take some cash out of your home and apply that to the upgrades you’ve always wanted to make but have been unable to afford. Simply put, let the house pay for its own upgrades! If you want to redesign your kitchen to be state of the art, remodel the bathrooms to create more serenity, or buildout a patio and deck in the backyard all these are possible by tapping into the home equity via a cash out refinance.

4) Expand your territory
There are quite a few neighborhoods in San Diego that have experienced equity gains in the hundreds of thousands of dollars over the past 24 months. For those of you who have had the aspiration of owning investment property, or multiple investment properties, this could be a great way to jump start that initiative in your financial life. Even $100,000 – $200,000 goes a long way to securing your down payment for investment property purchases in this market. Additionally, the emergence of mortgage products like DSCR Loans (Debt Service Coverage Ratio) help close the gap between being able to purchase investment properties and not purchasing investment properties. DSCR loans allow for market rent to be applied to the Debt-to-Income ratio on an investment home purchase. Translation: the monthly payment(s) your tenant(s) will pay counts to offset the monthly mortgage cost on the investment purchase loan you are seeking. There are a variety of ways to utilize this program and we suggest you speak with a local mortgage expert on our team to strategize how to make the most of a program like this.

Lastly, expanding your territory might look like building an ADU (Accessory Dwelling Unit) on your current lot. While this is not actually acquiring more land, a cash out refinance can also be used to generate the funds for such a project like this. ADUs have become increasing popular in San Diego in response to the county making it much easier to secure permits in a timely fashion, and address housing demand we face here locally. The addition of an ADU on your lot could create income to enhance the land you already own by securing a tenant. If that isn’t in the cards for you, an ADU could be the necessary solution to welcome home family members who need to live close by and receive daily care as they enjoy their retirement.

We hope this has provided some insight on how you can effectively use your home equity in San Diego County. If you have a different reason for a cash out refinance in this market, reach out and tell us about it, we’d love to hear from you!

If you would like to speak with our team about your home loan questions, please complete the form below. You can also start your loan application online by APPLYING NOW.

Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.