Homeowners struggling due to coronavirus-related setbacks can use their home for cash in a number of … [+]
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With reports that as much as 20% of the country could be unemployed due to coronavirus-related setbacks, it appears many Americans may have cash flow struggles in their futures.
Fortunately, homeowners are in a unique place to overcome these challenges. For one, some states (and banks) have allowed qualifying homeowners a temporary stay on mortgage payments, putting thousands back in their pockets over the next few months. Additionally, foreclosures have been paused for at least 60 days on Fannie Mae-, Freddie Mac- and FHA-backed loans.
Home equity loans, HELOCs and refinancing can also help create additional cash flow for homeowners, and with the market’s historically low rates, they could help lower mortgage payments as well.
Finally, there are also a variety of equity sharing, leaseback, and loan restructuring solutions that can turn home equity into quick cash flow when needed. These allow homeowners to sell off a portion of their home equity, share in the future appreciation of their home, or even cash in on all of their equity and rent back the home instead.
Are you worried about how you’ll pay the bills as the coronavirus outbreak worsens? If you’re a homeowner, here are four solutions you have at your disposal:
Home equity loans & HELOCs
Home equity loans and home equity lines of credit (HELOCs) are common ways homeowners can access their home equity. Though both could be helpful in times of financial struggle, HELOCs are likely the best of the two options during the COVID-19 outbreak.
Home equity loans act as a second mortgage and require monthly repayment. HELOCs, on the other hand, work like credit cards. Homeowners can draw upon them as needed and repayment is usually required for many years (10 years is most common). HELOCs also come with lower origination fees than home equity loans.
Refinancing
Refinancing can be a good way for homeowners to create cash flow—especially with today’s low rates, according to Nicole Rueth, producing branch manager at mortgage lender The Rueth Team.
“While I believe the duration of today’s volatility will be short, the after-effects could linger for 12 to 18 months,” Rueth says.”However, with mortgage interest rates at historically low levels, homeowners can turn to the generous equity they’ve accumulated in the last eight years with a few refinance options.”
There are two ways refinancing can help homeowners during this time: First, by lowering their interest rates and monthly payments, thereby freeing up more cash. This is called a rate-and-term refinance.
The second way is via a cash-out refinance, which allows homeowners to replace their existing mortgage loan with a new one—one that’s higher than their current loan balance. They then keep the difference in cash.
Equity & appreciation sharing
Another option for struggling homeowners is to share in their home’s equity or eventual appreciation, which essentially means giving an investor a cut of your profits when it comes time to sell or your home improves in value. Various tools make this an easy move, including Haus, Unison, Patch Homes, and Point.
Leaseback
Finally, homeowners can decide to sell their homes entirely, getting their equity back in cash, and renting the home back from the investor they sold it too. EasyKnock is a platform that offers a version of this, letting homeowners cash in on their equities, remain in their homes, and still retain the rights to buy back the property at a later date. RentBack operates similarly.
According to Jarred Kessler, CEO of EasyKnock, homeowners can receive cash for their home equity within just a few days. During the COVID-19 outbreak, the company is also shaving $1,000 off rent payments for the first year of the leaseback.