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

A couple stands in front of their home discussing the benefits of a home equity loan and selling the property.

Key Takeaways

-Home prices are currently at historic highs. At the same time, the number of properties available for sale is low, making this an excellent time to put your home up for sale.

-There are other factors to consider when deciding whether you should sell. For instance, moving costs can be prohibitively high. You may not be able to find a replacement home that is affordable for you and meets your needs.

-Luckily, there are ways to access your home’s value that don’t involve selling it. These include: home equity loans (HELs); home equity lines of credit (HELOCs); and Home Equity Agreements (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 Rates and Prices

It’s no secret that home prices have been accelerating to sky-high prices – and many experts don’t expect things to change much this year, despite mortgage rates beginning to rise. As of this writing, the national average rate for a 30-year fixed mortgage had risen to just over 5%. To give you a little perspective, though, the long-term mortgage rate average since the Federal Home Loan Mortgage Corporation started keeping records in 1971 is around 8%.

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 in order 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 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

Sellers have been including more contingencies in the contracts. 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 $4,890. Costs can be much higher, depending on the weight of your belongings, the move date, 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, 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 5 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 3-5% 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.

A graphic showing the differences of HELs versus HELOCs.

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 sharing a percentage of the proceeds with the HEA provider when you sell your home at the end of the term, usually in 10 years.

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

-Credit score of 550 or higher

-Maximum LTV ratio of 80%

-At least 25% equity in your home

Again, as this isn't a loan, there are no 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’s HEA solutions can do for you.