? about mortgages, appreciation, equity....just curious

[MariannNOVA]

DH and I were reading somethng in USA TODAY (the freebie paper at the E.S.H.) this morning, and I wondered something out loud.

 

If one owns a home, and the home appreciates substantially in value (the way properties did here in NoVa during the big run-up), is there any other way besides selling your home (and having someone hand you a check at settlement) that one is able to access that appreciation without having an equity loan or equity line of credit to pay?

 

So, if one owns a home and the value increases, and one does not sell that home and leave with that increased $ appreciation, and then the market experiences a correction and the value goes back down, the owner has missed out on the opportunity to get their equity? Is that right? Is selling the only way to walk away with your equity?

 

I'm sure the answer is staring me in the face, but I am trying to figure out my camera and posting the squares from Scarlett's Quilt and the hamster is running the wheel with that objective in mind.

 

Help? With the RE question................that is.............I'm curious.:001_huh:

[Carrie12345]

As far as I'm aware, you're assessment is correct. A house's "value" is based on what a buyer would pay for it.

 

If a house is purchased for $100,000 and is later "valued" to be worth $150,000 but there is no buyer, who would be handing the homeowner $50,000, and what would they be getting out of it?

[Brigitte]

Your net worth increases when your equity increases, just like your net worth increases when your stock portfolio increases. The opposite is true as well. The only way to cash out your equity in your house is by borrowing against it or selling it (again, just like stocks).

[MariannNOVA]

As far as I'm aware, you're assessment is correct. A house's "value" is based on what a buyer would pay for it.

 

If a house is purchased for $100,000 and is later "valued" to be worth $150,000 but there is no buyer, who would be handing the homeowner $50,000, and what would they be getting out of it?

 

Your net worth increases when your equity increases, just like your net worth increases when your stock portfolio increases. The opposite is true as well. The only way to cash out your equity in your house is by borrowing against it or selling it (again, just like stocks).

 

Thank You both! That's what I was coming up with, and I wanted to be certain I wasn't overlooking something. Thanks for the 'stock' analogy -- that is a good way to describe it.

[hornblower]

Yes, your net worth has increased but the only way to get at that money is to sell the house or borrow against it.

 

This is why it used to be said that people shouldn't look at their primary residence as an investment - most people can't just sell it even if the market dictates that this would be the wise course to take (whereas you can liquidate your other assets - the car, the painting you just found out is valuable, the ugly jewellry your Aunt Beryl gave you).

 

And really, borrowing against your primary residence is a pretty risky thing. Worst comes to worst, you're homeless.

 

Those were all things that (rich) people did with their investment properties - sell them, use them as collateral to borrow more money to buy more real estate etc.

 

The whole 'using your house as an ATM machine' thing really messed things up.....

[MariannNOVA]

Yes, your net worth has increased but the only way to get at that money is to sell the house or borrow against it.

 

This is why it used to be said that people shouldn't look at their primary residence as an investment EXACTLY - most people can't just sell it even if the market dictates that this would be the wise course to take (whereas you can liquidate your other assets - the car, the painting you just found out is valuable, the ugly jewellry your Aunt Beryl gave you).

 

And really, borrowing against your primary residence is a pretty risky thing. Worst comes to worst, you're homeless.

 

Those were all things that (rich) people did with their investment properties - sell them, use them as collateral to borrow more money to buy more real estate etc.

 

The whole 'using your house as an ATM machine' thing really messed things up.....

 

Thank you, yup, those were the thoughts floating around in my mind. We know too many folks who used their homes just as you described, as an ATM machine.....and even worse, never made the improvements that they had taken out the $20k or $40k to make, be it an addition, or a new kitchen and baths or to finish a lower level......instead it was frittered away and then they all took a trip to Orlando. So, the appreciation/increase in value that dh and I are realizing in our home that is now almost completely renovated.....well, I get it. We stay and hope that when we are ready to leave, the value is still there, or we sell, take the increase, and go someplace else. Thanks!

 

And, Hornblower, my kids, dh and me are eyeing an adorable Hound to be Guidry's sibling as we are getting ready to move back into our house. He is a rescue too and has the MOST soulful eyes! :D

[Crimson Wife]

If this is a question not for you but for a family member who is 65+, that person can get a "reverse mortgage". The individual gets a monthly check from the holder and can stay in the house until he/she either dies or goes into a nursing home. At that point, the home is sold and the holder gets paid back out of the proceeds. It's kind of like a home equity loan except the homeowner receives a monthly check instead of a lump sump up front.

[MariannNOVA]

If this is a question not for you but for a family member who is 65+, that person can get a "reverse mortgage". The individual gets a monthly check from the holder and can stay in the house until he/she either dies or goes into a nursing home. At that point, the home is sold and the holder gets paid back out of the proceeds. It's kind of like a home equity loan except the homeowner receives a monthly check instead of a lump sump up front.

 

Well, actually, and now you will see how BORED we are here in the hotel having yet another blizzard: we were talking about someone at DH's firm. He and his wife own a townhome and for years his wife wanted them to sell and 'move up.' They never did as the husband's response was that everyone here had 'house envy' and they were going to stay put in their townhome - which is fine. My question stemmed from my curiosity that by staying put they had passed on perhaps $300-$400K in equity at the height of the market run up - simple, idle, curiosity.... thanks for the reverse mortgage info - I did not know what happened when the property was finally sold - that answers that question.

[hornblower]

If this is a question not for you but for a family member who is 65+, that person can get a "reverse mortgage".

 

In my family we call this spending the kid's/kids' inheritance :)

It is a good option if all of the equity is tied up in the primary residence and there are no retirement savings, or the savings are dwindling.

 

 

Mariann - awwwww! the cuteness!!!! Guidry absolutely needs a buddy! My two are not even particularly bonded (they like each other but it's not like they ADORE each other, kwim) and it's a huge difference how much happier they are than singletons. Two are not much more work than one. ;)

 

Of course at the moment I have a 3rd - a newfie X foster & I can tell you that three is a handful, but maybe it's only because Bear is big dork, or maybe it's because 3 big dogs + 1 diva cat + 4 people in a small house (with part of it under reno's) is stretching the capacity of the physical space. He's from a native village up north & is just learning about living inside with people. This is him.

Edited February 10, 2010 by hornblower

[Mommyof4ks]

Well, actually, and now you will see how BORED we are here in the hotel having yet another blizzard: we were talking about someone at DH's firm. He and his wife own a townhome and for years his wife wanted them to sell and 'move up.' They never did as the husband's response was that everyone here had 'house envy' and they were going to stay put in their townhome - which is fine. My question stemmed from my curiosity that by staying put they had passed on perhaps $300-$400K in equity at the height of the market run up - simple, idle, curiosity.... thanks for the reverse mortgage info - I did not know what happened when the property was finally sold - that answers that question.

 

True, they 'lost' that opportunity, but at the same time when things sell high then one must buy high. Basically it all works out to be about the same if you are moving to a new house or whatever. You get a higher amount for your house, but you have to pay a higher price for a new place. We sold last year, and did not make as much as we would have 3 years ago, but we also were able to get a mortgage for much less on our new house with a much lower interest rate so in essence we came out ahead of where we would have been if we had sold 3 years ago. Does that makes sense?

[MariannNOVA]

True, they 'lost' that opportunity, but at the same time when things sell high then one must buy high. Basically it all works out to be about the same if you are moving to a new house or whatever. You get a higher amount for your house, but you have to pay a higher price for a new place. We sold last year, and did not make as much as we would have 3 years ago, but we also were able to get a mortgage for much less on our new house with a much lower interest rate so in essence we came out ahead of where we would have been if we had sold 3 years ago. Does that makes sense?[/QUOTE]

 

Not only does it make sense, that was exactly what I was trying to articulate. :001_smile:

[Sara R]

True, they 'lost' that opportunity, but at the same time when things sell high then one must buy high. Basically it all works out to be about the same if you are moving to a new house or whatever.

 

The only way you could have kept the money is if you sold when the market was high, and either moved out of the area to a place that hadn't had a big run-up in price, or rented. And I didn't know of anyone who did that on purpose. My brother almost did because he suspected the market was going to go down, but he opted against it. I know of family who moved out of So. Cal. to Utah at exactly the right time, but the correct timing was accidental and due to personal reasons.

 

This gal sold her Arizona home near the height of the bubble to take advantage of an out-of-state job they opted not to take. At the end of the lease they looked to buy again, but prices had risen significantly in just that short time. She decided to research prices before she bought again, and boy howdy she is now glad she did.

[MariannNOVA]

The only way you could have kept the money is if you sold when the market was high, and either moved out of the area to a place that hadn't had a big run-up in price, or rented. And I didn't know of anyone who did that on purpose. My brother almost did because he suspected the market was going to go down, but he opted against it. I know of family who moved out of So. Cal. to Utah at exactly the right time, but the correct timing was accidental and due to personal reasons.

 

This gal sold her Arizona home near the height of the bubble to take advantage of an out-of-state job they opted not to take. At the end of the lease they looked to buy again, but prices had risen significantly in just that short time. She decided to research prices before she bought again, and boy howdy she is now glad she did.

 

Precisely -- we sold right before the bubble burst, rented, and then bought almost when we thought prices had bottomed out.....and bought in a very desirable location that now has no 'for sale' inventory......so of course, my mind is working and while I hate 'real estate roulette,' it's somewhat difficult to resist. I do tire, though, of paying RE commission.

[MariannNOVA]

In my family we call this spending the kid's/kids' inheritance :)

It is a good option if all of the equity is tied up in the primary residence and there are no retirement savings, or the savings are dwindling.

 

 

Mariann - awwwww! the cuteness!!!! Guidry absolutely needs a buddy! My two are not even particularly bonded (they like each other but it's not like they ADORE each other, kwim) and it's a huge difference how much happier they are than singletons. Two are not much more work than one. ;)

 

Of course at the moment I have a 3rd - a newfie X foster & I can tell you that three is a handful, but maybe it's only because Bear is big dork, or maybe it's because 3 big dogs + 1 diva cat + 4 people in a small house (with part of it under reno's) is stretching the capacity of the physical space. He's from a native village up north & is just learning about living inside with people. This is him.

 

AWWWWWWWWWWWWWWWWWWWWWW -- my ds 9 is just learning about living inside with people! I emailed the Rescue org from where we adopted Guidry as they are the group that has Walker......I am waiting to hear from them.

Edited February 10, 2010 by MariannNOVA

[Rosy]

Ok, I'll be the one to offer the "yeah, but..." :001_smile:

 

We bought our first house with almost nothing down and sold it two years later for $32k more than we paid for it. Used that to cover moving expenses and as the down payment on our next house, and walked away from that one with a down payment for our current house and some remodel money.

 

So yeah, if you sell high, you also have to buy high (if you're staying in the same area), but having some equity does give you some flexibility if you're trying to upgrade or downgrade. Also, I don't know this for sure, but wouldn't your credit score be higher if you had a substantial amount of equity in your home?

[MariannNOVA]

Ok, I'll be the one to offer the "yeah, but..." :001_smile:

 

We bought our first house with almost nothing down and sold it two years later for $32k more than we paid for it. Used that to cover moving expenses and as the down payment on our next house, and walked away from that one with a down payment for our current house and some remodel money.

 

So yeah, if you sell high, you also have to buy high (if you're staying in the same area), but having some equity does give you some flexibility if you're trying to upgrade or downgrade. Also, I don't know this for sure, but wouldn't your credit score be higher if you had a substantial amount of equity in your home?

 

That is an interesting point -- it would stand to reason that it would. Also, though, if you sell a home and pay off the mortgage, doesn't that have a positive impact on one's credit score? Asking b/c I don't know. :001_huh: