In the years since the housing crisis, homeowners have become more conservative financially as home values have appreciated and today many find themselves sitting on a windfall of useable home equity. One study puts the amount of lendable home equity at nearly $5 trillion.
According to a recent report from Black Knight Financial Services, U.S. homeowners have $4.7 trillion in tappable home equity.
While increasing property values are part of the puzzle of the increase in equity, so to is homeowners’ unwillingness to seek a cash out refinance.
Since the housing crisis, lenders have turned off the flow of cash with stricter cash out lending rules. Many homeowners decided it wasn’t worth their time to even try.
Today, consumers must have a trifecta of enough equity, a high credit score and a healthy relationship between their debt and income to take money out of their house via a cash-out refinance, home equity loan or home equity line of credit.
“The standards were already fairly tight, but now with a lower volume of refis being done, you have more people looking at every file,” noted Paul Anastos, president of Mortgage Master Inc. “There’s more scrutiny from banks and the agencies.”
But that is starting to change as lenders ease up on the rules and cash out loans are starting to retain their attractiveness. Lenders are developing new offerings as mortgage rates rise and no-cash out refis evaporate.
And the trends show that lenders just may be getting the attention of homeowners with new options.
According to the Black Knight Financial Services report homeowners reached into $31 billion in home equity in the fourth quarter of 2016, up 50 percent from the same period in 2015.
Tapping into that current home value can be a good option, under the right circumstances, for homeowners seeking to fund renovations or other property improvements, consolidate debt or cover a major expense.
However, it seems that older homeowners still are hesitant to tap into their home equity, even as a means of boosting their financial retirement, according to the National Council on Aging.
But amid a growing mounting of available cash, lenders are still using common sense when dolling out loans.
According to Black Knight, cash out loans today are generally being approved for applications with high credit scores. Applicants’ post-refinance home equity remains a healthy 35 percent. As a result, the loans are practical and sustainable.
One note of caution: it doesn’t always make sense to cash out at a higher rate. However, it can be a useful tool for debt consolidation, even at a higher rate. So, if you are debt-free, make sure to think carefully as rates rise and weigh your options.
Historically, rates have hovered in the 8 percent range, but today’s rates are just above 4 percent, making it a terrific bargain.
In addition to debt consolidation and home improvements, you also can protect your investment by placing money in non-real estate investments to diversity your portfolio. This can be an attractive option for homeowners that have no other assets.