Can Your Home Equity Help You Avoid Foreclosure?

Home Equity concept

When the real estate market hit rock bottom in 2008, it was a very different set of conditions than we have today. The bursting of that housing bubble was largely a result of too many bad sub-prime mortgage loans being handed out to just about anyone who applied—whether they truly qualified or not. Eventually, all those poorly structured loans came back to bite the lenders and the homeowners who couldn’t afford to keep up with mortgage payments. This led to a lot of short sales and foreclosures in the years to follow.

Current Market Conditions

We are starting to see more foreclosures in the current market. We’re still coming out of the pandemic economy and, as inflation rises, some homeowners have struggled to keep up with their mortgage payments. However, a key difference today is that many homeowners have built up good home equity. Home prices dropped dramatically in the last major recession, which led a lot of mortgage borrowers finding themselves “upside-down” on their loans. In other words, they owed more on their mortgage than the home was worth after prices dropped.

There are some homeowners today who may find themselves in this upside-down situation and foreclosure could be a real possibility. However, a majority of homeowners will probably have at least some equity in their properties. Property values have been going up rapidly in recent years because of the housing shortage and high buyer demand. Prices are leveling out some, but they aren’t dropping down this time. Even if you bought fairly recently, there is a chance your home’s value has gone up enough to be meaningful.

Home Equity = Power

Why is your home equity so meaningful? It will give you much more power and leverage by providing you additional options when facing financial distress. If you lost your job, are facing large medical bills or other debts, and/or are behind on your mortgage payments, your home equity could be a life-saver.

There are cash-out mortgage refinance loans and home equity lines of credit (HELOCs) that can allow you to tap into some of your equity. However, those are just putting your deeper into debt. You have to be very careful about borrowing from your equity just to help you keep your home. That is a very slippery slope.

Sell Your House Now

Your better option may be to sell your house as soon as possible. You can avoid foreclosure and the pitfalls of piling up additional debt on top of what you already owe. If you are not upside-down on your home loan because you have built up a decent amount of equity, you will have different solutions you can consider long before the bank comes to seize your property. This is true even if you have already started to receive some pre-foreclosure warning letters and calls.

Sell your house while you still can and take advantage of your home equity. You may be able to walk away with some profit or it may allow you to break even depending on your other debts and expenses. At the very least, you can get out from under the financial burden of your house and minimize the overall financial damage. You can also avoid the negative credit impact and other major issues that happen if you go through a home foreclosure. Sell now and cash out what you can while you can.

If you have time, you can go through a traditional home sale on the open market. This may fetch you a higher sales price, but it will take some time and will include some out-of-pocket expenses along the way. Another solution is to sell quickly to a cash real estate buyer or investor. You can close the deal fast and move on with your life.

If you would like to get a fast and fair cash offer within 24 hours, contact PropertyLark today. Get started by filling out the simple contact form to the right and telling us a little about you and your house.