Home Equity: A Source of Strength for Homeowners Today
There is no chance of a widespread foreclosure crisis like the one we experienced in 2008, experts agree, which is good news for the housing market. According to First American's Chief Economist Mark Fleming:
“. . . don’t expect a housing bust like the mid-2000s, as lending standards in this housing cycle have been much tighter and homeowners have historically high levels of home equity, so there likely won’t be a surge in foreclosures.”
Data from the Mortgage Bankers Association (MBA) helps tell this story. It shows the overall percentage of homeowners at risk is decreasing significantly with time (see graph below):
However, despite the extremely low number of homeowners at risk, a small proportion of homeowners may currently be facing the threat of foreclosure. Knowing your alternatives can be beneficial if you're having problems of your own. Understanding what foreclosure is the first step. According to Investopedia, this:
“Typically, default is triggered when a borrower misses a specific number of monthly payments . . . Foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property.”
The good news is there are alternatives available to help you avoid going through the foreclosure process, including:
▪️ Loan modification
▪️ Deed-in-lieu of foreclosure
▪️ Short sale
But before you go down any of those paths, it’s worth seeing if you have enough equity in your home to sell it and protect your investment.
You May Be Able To Use Your Equity To Sell Your House
Equity is the difference between what you owe on the home and its market value based on factors like price appreciation.
In today’s real estate market, many homeowners have far more equity in their homes than they realize due to the home price appreciation we’ve seen over the past few years. According to CoreLogic:
“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”
What does that entail for you, then? It's likely that your home's value and equity have increased significantly if you've lived there for at least a few years or longer. The balance of your loan was also reduced during that time thanks to the mortgage payments you made. You might be able to take advantage of the increase in value of your home if it exceeds the amount that is still owed on your loan.
Rick Sharga, Executive VP of Market Intelligence at ATTOM Data, explains how equity can help:
“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”
Lean on Experts To Explore Your Options
Get in touch with a local real estate expert to determine your equity. Based on previous sales of comparable properties in your neighborhood, they may offer you an estimate of how much your house might sell for. To prevent foreclosure, you might be able to sell your home.
Your agent can also assist you if it turns out that you need to investigate alternative possibilities. If selling is not your best option, they will be able to put you in touch with other experts in the field, such as housing counselors, who can assess your particular situation and advise you on what to do next.
A real estate expert can help you explore your options and determine whether you can sell your home to avoid foreclosure if you are a homeowner who is struggling.
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