Home Ownership: The Next Steps

Once you achieve your goal of home ownership, you will find you also achieve prestige in the eyes of lenders. Homeowners are considered the most responsible borrowers. First, homeowners had the credit and cash to purchase a large investment. Additionally, homeowners have a huge source of collateral in the home itself. As a result, lenders prefer to work with homeowners, and you will find that lending offers pour in once you finalize your purchase. While you should always be cautious of over-leveraging your investment, you may consider some options to increase your wealth using your home as collateral.

Home Equity Lines of Credit

As a new homeowner, you will find offers for credit cards in your mailbox regularly. You may already have credit lines, but a homeowner can often achieve lower rates by opting for a line secured against the home. While it is not prudent to respond to all queries for loans, consider asking around about the best possible rates you can achieve. You may find the unsecured bank card you currently hold at high interest could easily be replaced by a low-interest, secured home equity line of credit.

Home Equity Loans 

If you would like to make improvements to your property, a home equity loan is an excellent option. These loans can be used to finance items outside the home. However, when this happens, you are taking equity out of the home and placing it somewhere else. It is a better investment to take the loan in order to increase the equity in your property by adding value through home improvements. The biggest "bang for your buck" changes tend to be kitchen and bathroom remodels, updating flooring, energy efficiency improvements and new windows or roofs.

Refinancing Options

Refinancing your mortgage can be a great financial decision. The option to refinance in the future opens up the type of mortgage you can take today. For example, if you think you may move within five years of purchasing your home, you can take an adjustable rate mortgage to get very low rates today. Then, if you decide you will stay longer, you can always refinance to a fixed rate loan in the future. Many people fear locking into terms for 30 years; the good news is you do not have to. Always know the door is open, but limit the number of times you refinance your property in order to maintain good credit.

Cash-Out Refinancing

Once you have paid the majority of your mortgage, you may find you need extra cash. You have a large piece of equity in your home, but you cannot spend that equity on the things you need in the short term. At this point, a cash-out refinance can help you immensely. Cash-out refinances are particularly popular among retired or fixed-income individuals who have a lot of assets but not a lot of income. Instead of sitting on a huge source of cash, consider the cash-out option but always ensure you are working with a reputable lender.