Tapping A Home Equity Loan Or Selling The Property: Which Is Better? 

Key Takeaways:

• Higher home prices have helped homeowners build significant equity in their homes in recent years. U.S. homeowners held $31.8 trillion in home equity at the end of 2023, according to HousingWire. 
• One way to tap growing home equity is to sell your home. However, there are a number of factors to consider when deciding whether you should sell, including moving costs and whether you’ll be able to find a replacement home that is affordable for you and meets your needs.
• You can also access your home’s value without selling it. The options for pulling equity out of your home include a home equity loan (HEL); home equity line of credit (HELOC); and Home Equity Agreement (HEAs).

So, you want to access your home equity. And like many homeowners, you face the perennial dilemma: get a home equity-based loan or sell the property? Is there another alternative? What should you do?

There’s no one-size-fits-all answer. Which option would be a better fit for you depends on your individual needs and your financial situation. 

Reasons to sell your home

1. Take Advantage of the Record Prices

Home prices continue to rise despite high mortgage rates. The median price of an existing home in the U.S. was $384,500 in February 2024, according to the highest February on record, according to the National Association of Realtors. The S&P CoreLogic Case-Shiller Index showed a 5.5% gain in home prices for 2023, with 10 of the 20 markets in the Index beating previous records.

2. You Landed a Good Deal

With prices staying high or continuing to climb in many parts of the country, the competition for homes makes it difficult for some lower-budget buyers to secure something at an affordable price. 

If you’re looking to sell your house to finance a new home purchase and have found an appropriately priced option, it may be a good idea to close the deal as soon as possible.

3. You Are Moving

If you need to move for a job or other reasons, take advantage of the current market and sell your home.

Reasons to Not Sell Your Home

Before you jump on the home-selling bandwagon, consider these factors.

1. Contract Contingencies Can Be Tricky

Depending on the market, sellers may include contingencies in the contract before agreeing to sell. A common one is setting terms that allow them to stay in their home until they find a replacement. That means you may have to wait before moving into your new home. Other contingencies have to do with forgoing home inspections, which could lead to buyer’s remorse on your part. 

2. Moving Costs Are High

If you’re going to hire professional movers, check prices in your area and plan to set aside at least $1,000. And if you’re planning a long-distance move, expect to pay an average of $4,400 to move a three-bedroom home, according to Forbes.  Costs can be much higher, depending on the size of your home, weight of your belongings, the move date, where you’re moving and any additional services you need, such as packing or insurance.

3. Emotional Toll

Selling your home and moving to a new place can be a hassle. And even the best-organized move will take an emotional toll on you and your family. You may not be able to put a price on such costs, but they are genuine. Be sure to take them into account when planning your next steps.

Reasons to tap Into home equity

Selling your property isn’t the only way to access its value. It’s not the only way to get your dream home, either. You can renovate, build the addition you’ve been dreaming about, or invest in a vacation house by tapping into your home equity. 

There are a few different ways to unlock your equity. Depending on your needs, some may be a better fit than others. 

Home equity loan (HEL)

With a home equity loan (HEL), you receive a lump sum against the equity in your home. You then repay it in monthly installments at a fixed rate over a period ranging from five to 30 years. 

A HEL can be a great way to get cash fast. But you will have to pay a closing fee amounting to 2-6% of the loan amount, and meet the following requirements:

• Credit score of 620 or higher
• Maximum debt-to-income (DTI) ratio of 43%
• Maximum loan-to-value (LTV) ratio of 85%
• Plus, if you default on payments, you run the risk of foreclosure.
  
  

Home equity line of credit (HELOC)

With a HELOC, you don’t receive a lump sum. Instead, you get access to a rolling line of credit, using your home equity as collateral. This enables you to borrow money on an ongoing basis – sometimes, up to 10 years.

HELOCs often have lower rates than HELs. However, these rates are adjustable, so your monthly payments may go up. You will also need to meet roughly the same credit score, DTI, and LTV requirements as with HELs. And if your credit score or home value drops, the lender can freeze your credit line.

Home equity agreement (HEA)

HEAs aren’t loans. There are no monthly payments or interest rates. You get a lump sum upfront in exchange for a portion of your home’s future value. Most HEA terms are 10 years, but some HEA providers offer terms up to 30 years.

Eligibility criteria vary between service providers. With Unlock, you can qualify if you have:

• Credit score of 500 or higher
• Maximum LTV ratio of 75%
• At least 30% equity in your home
• Flexible income requirements
• A home equity agreement can be a good fit if you:
• Need cash right away 
• Don’t qualify for other financial products
• Don’t want to, or can’t, make monthly payments or incur interest
• If you plan to continue owning or living in your home after the end of the HEA, you’d need to buy out the provider. 

Tapping Into home equity or selling: Make the right decision for you

While both solutions may work for you depending on your needs, home equity can address problems that neither selling nor debt can. 

Click here to learn what Unlock Technologies’ HEA solutions can do for you.