By Ndeda Letson
Home ownership is a goal for many people. Why is it so often emphasized? It’s one of the most effective ways to build generational wealth, especially for low-income communities and communities of color. Although varying across markets, housing wealth — home equity — increases when housing prices appreciate and as the mortgage is paid off. These factors increase homeowners’ wealth power.
A recent report from the National Association of Realtors showed that mortgaged homeowners amassed over $2.95 trillion in equity — putting an average of $51,470 in borrowers’ pockets — on an annualized basis by 2021’s second quarter, according to CoreLogic.
Gains in home equity reached historic levels, including in metro Detroit. It’s a good time for homeowners to estimate their equity and consider how it can be used to reach their financial goals. Whether it’s augmenting emergency funds, consolidating debt to accelerate pay-off, funding education, renovating a home or purchasing a vehicle, homeowners should be well informed, confident to select their best option and capable of using it in a financially responsible way.
Citizens and the Wayne Metropolitan Community Action Agency are partnering to educate hundreds of homeowners on how to maintain the dream of homeownership. This includes knowing how to leverage their home equity power.
“We empower Wayne County residents to use homeownership to build wealth,’’ says Sylvia Saldana, Assistant Director of Programs Housing Stability Services at Wayne Metropolitan CAA (www.waynemetro.org/housing) “There is a lot of sound home financing education available to homebuyers. However, continued education is needed to help homebuyers maintain homeownership. Our ‘Maintaining the Dream’ workshops do just that.“
Understanding home equity lending products is an important step. Options include mortgage refinance (with or without taking cash out), home equity loans and home equity lines of credit (HELOC). All have advantages and disadvantages, depending on your goals. Each uses your home as collateral and, as your mortgage is paid, your home regains equity. Unlike a refinance or home equity loan, a HELOC’s interest rate is variable and adjusts with the prime rate. It’s a line of credit, so you can draw what you need, when you need it. This can be a big advantage.
If you’re interested in leveraging your home’s equity, consider a few things before applying:
Get help: Citizens prides itself on providing safe and sound financial products and services, including consumer financial education and technical assistance to help consumers make informed financial decisions. From 2019 to 2021, Citizens – in partnership with Detroit area non-profit organizations – provided 1,000+ financial education/TA service hours to community members. To find additional housing counseling agencies near you, go to www.hud.gov or call 800- 569-4287.
Seize low rates: Despite gradual increases this year, interest rates are expected to remain relatively low. If you have a balance on your HELOC, your minimum loan payment will be higher. So, be deliberate with you’re spending and only borrow what you need.
Shop lenders: The pandemic accelerated consumers’ reliance on online and mobile banking. Lenders who provide easy digital experience, fast access to funds as well as personalized expert advice are preferred. As we move through the pandemic’s recovery stage, financial institutions still have many digitally accessible resources to help homeowners.
Pay it off: Select a lender who will help you determine a manageable and cost efficient path to pay off your loan. That path should be tailored to your budget, strengthen your credit score, and position you to access future financing opportunities that support your wealth building goals.
Letson is vice president, Midwest community development market manager and Community Reinvestment Act (CRA) officer for Citizens.