What To Do If You’re House-Rich But Cash-Poor 

Key takeaways: 

• Being “house-rich” is great, because it means you have an asset. 
• Being “cash-poor” is a real problem, but it doesn’t reflect badly on you if you are struggling to make ends meet. 
• There are options out there to help you use your house wealth to pay the bills. 

It may seem like an odd problem to have: if you’re one of the many Americans who are “house-rich,” you have a home or a property that’s worth a lot, at least on paper. But it’s usually coupled with “and cash-poor,” which suggests you don’t have a lot of money coming in to pay the bills. If that’s you, we’re here to help. 

Most importantly, you should know you’re not the only one in this predicament. A recent survey found that one-third of Americans don’t have even $500 saved for an emergency. Meanwhile, the Federal Reserve recently reported that “Nearly two thirds of adults stopped using or used less of a product because of inflation, 64% switched to a cheaper product, and just over one half (51%) reduced their savings in response to higher prices.” 

Money is tight for many Americans, and the red-hot inflation of the past few years hasn’t helped. As you probably know, high inflation is a sign of an economy that’s growing too fast. To try to slow it down, the Federal Reserve has been raising the cost of borrowing, which is why you might have sticker shock if you’ve tried to apply for a loan or a mortgage recently. 

Sources: Labor Department, St. Louis Fed 

The strange irony is that even as the cost of nearly everything has gone up, so have home values. And while that’s heartbreaking for some, especially young people trying to become homeowners for the first time, it’s a boon for people who already own. The challenge is how to access the wealth you have tied up in your home. Here are some options.  

Home equity lines of credit and home equity loans  

Home equity lines of credit, or HELOCs, are one way to tap the wealth — equity — you have in your home. As a reminder, equity is the value of the home minus any mortgage and other loans you have against it. Say you have a home worth $500,000, and you owe $400,000 on your mortgage. You have $100,000 in equity.  

Banks and other financial institutions may lend you money secured by that equity. They usually offer a HELOC for about 80% of the value of the equity you have, and you generally have access to the cash for 10 years, with another 20 years to pay it back. 

The trickier part: to qualify for a HELOC, you usually need to have a credit score well over 620, and in some cases closer to 700, and a debt-to-income ratio below 40%. What’s more, any money you take from the line of credit needs to be paid back at a fairly steep rate: in fall 2023, that was roughly 8%, according to a sample of prominent lenders. 

Home equity loans work in much the same way, except that you get a fixed amount of cash up front, rather than a line of credit that you can tap only when you need it. That makes loans a better option for people who need to pay for one thing — say a child’s education or a renovation whose value is already known. But as with HELOCs, you’ll need a good credit score and debt-to-income ratio. And just like with a HELOC, you’ll be taking out another loan, which means you could be subject to high interest rates. 

Cash-out refinance 

A cash-out refinance lets you refinance your mortgage and take the difference as cash. In the above example, you could take out a new mortgage for $500,000 and pocket the $100,000 difference. But as you probably know, mortgage rates are also extremely high right now — higher than what most people currently have, meaning you’d be replacing one monthly housing bill with another, higher one.  

You might be able to get a cash-out refinance with a slightly lower credit score and higher debt-to-income ratio than you’d need for a HELOC or home equity loan, but don’t forget you’ll also pay a lot of fees for the refinance.  

Home equity agreement 

An Unlock home equity agreement gives you cash now in exchange for a share in your home’s future value. Credit score requirements are lower than those of HELOCs and home equity loans, and income requirements are flexible. It’s not a loan or a line of credit, so you don’t have to worry about interest rates.  

A home equity agreement may not be right for everyone, but it’s a more modern tool than home equity loans and lines of credit, and it can make a lot more sense in a high-rate environment than cash-out refinances do for many homeowners. 

In short, don’t feel bad if you’re “cash-poor:” you’re not the only one. If you’re lucky enough to be “house-rich,” you have options that may help.