How to Access Home Equity in a Financial Emergency

Financial emergencies such as medical bills, car repairs, unexpected fines and even urgent pet care can easily throw a wrench in your financial plans. As rising costs and fears of a recession raise financial worries, the average American needs to carefully consider their options.

While an emergency fund is good insurance against financial turmoil, it’s not always an option. Only 44% of Americans have enough funds to cover a $1,000 emergency expense, while only 47% have more rainy day savings than credit card debt. And even then, consecutive crises can quickly wipe out your savings. While taking out a personal loan or going into debt on a credit card can pay the bills now, fees and interest rates can be major hurdles.

Meanwhile, homeowners with equity in their homes have another option. By taking advantage of owning your home with equity loans, equity loans, and equity sharing agreements like Unlock, you can avoid paying high interest rates in times of financial hardship.

How home equity can be an option for unexpected expenses

Home equity is the portion of the home you own on a mortgage; essentially, it’s the difference between the value of your home and the amount you owe. The more you have paid on your mortgage and the more the market value of your home increases, the more equity you have available. There are several options for leveraging the value of your home.

A cash refinance is a type of mortgage refinance that allows you to replace your current mortgage with a larger loan in exchange for money taken from equity. Another option – the traditional home equity loan – allows homeowners to borrow a cash lump sum against their equity to be repaid later. On the other hand, a home equity line of credit (HELOC) offers flexibility in how much you can withdraw. It should be noted that home equity loans and HELOCs have separate repayment terms and interest rates from your original mortgage.

A fourth option is to enter into a share-sharing agreement. Equity sharing companies will buy back a share of the home’s equity in exchange for more of the equity in the future. Homeowners redeem their equity share after an agreed period of time or pay a percentage of the amount for which they later sell the house.

Home equity agreements can be attractive to homeowners who are looking for other ways to get equity out of their home, but may not be able to afford increased or additional monthly payments. Also, the process can be relatively faster and have lower credit requirements while avoiding high interest rates.

What to consider when cashing in equity

While home equity can be a financial cushion, it’s not a good idea to treat your home like a piggy bank for incidental expenses. Cashing out your capital does not happen instantly and comes with fees, requirements, and other factors to consider.

Most equity loans, HELOCs, refinances, and sharing requirements require you to have more than 20% equity in your home, while some require 20% equity remaining after withdrawal. These options have income requirements and minimum credit scores.

Additionally, a cash refinance replaces your previous monthly payment and term and starts over, while home equity loans and HELOCs require a separate payment in addition to your main mortgage payment each month. For these options, the total amount you pay each month for your mortgage will increase. Other refinancing options, home equity loans and equity sharing agreements will give you lump sum cash. HELOCs, on the other hand, are flexible in how much you withdraw.

Finally, refinance, home equity loans and HELOCs can take several weeks to be approved. Since these are essentially loan applications, you will not be able to access your money immediately. All forms of stock withdrawals also come with closing costs.

Access to equity comparisons

Capital requirement 20% equity 15% to 20% equity 15% to 20% equity 20% equity
Min. credit score requirement Varies — usually 620 Mid 600s Mid 600s 500
Maximum loan amount 80 percent equity 80 percent equity 80 percent equity 10% of the total value of the house
Approval time 45 to 60 days with a 3-day waiting period 14 to 42 days 30-60 days 10 to 30 days
Payment Lump sum Lump sum Credit line Lump sum
Interest rate Fixed or variable Fixed Variable None
Repayment Terms Single monthly payment over 15 to 30 years Additional monthly payment over 5 to 30 years Variable additional monthly payment over 20 years No monthly payments; the owner pays back the agreed percentage of the value of the house
Costs 3% to 5% of the loan 2% to 5% of the total loan 2% to 5% of the total loan 3% of total loan, other closing costs

Why Access Home Equity Through Sharing Agreements

Equity sharing agreements can be a viable option for owners who need quick and less demanding access to cash. While there are downsides to splitting stocks, here are a few reasons why this option may be for you.

Lower requirements

Home equity shares often come with lower requirements than a refinance, home equity loan, or HELOC. If your credit score has dropped due to bill buildups or you don’t meet the income requirements for traditional home equity withdrawal methods, a share of your home equity can still free up your money. during your recovery.

Faster collection

Home equity stocks can make you money faster. Although there is still a turnaround time for application approvals and home inspection, stocks can offer faster withdrawal than traditional stock access methods – sometimes in as little as 10 minutes. days – without a waiting period.

No monthly payments

One of the biggest advantages of a share split arrangement is the lack of monthly payments. Refinances, equity loans, and HELOCs can punch up your wallet with increased or additional monthly payments. Home equity shares, however, only require payment upon the sale of the home or the end of the sharing agreement, giving you a chance to get back on your feet before you pay out.

Avoid rising interest rates

You don’t have to pay interest on a capital share when it’s time to sell your home or redeem the share. This means that even if interest rates go up, your payment will stay the same.

How Unlock quickly turns equity into cash

Unlock is a capital sharing company that allows you to access your capital quickly and efficiently, with lower requirements and no monthly payments.

Unlock works by redeeming a future share of your home’s equity in exchange for immediate cash. When the share begins, you can access between $30,000 and $500,000, depending on the value of your home, up to a certain home equity threshold. In exchange, Unlock receives more of your equity at the end of the deal or when the house is sold – so if you sell 10% of your total equity at the start, Unlock will receive 16% at the end of the term.

Owners have flexibility in how they reimburse Unlock. You can sell your house and unlock the amount from the sale price. You can also redeem the share before the end of the contract, either in installments or in a lump sum.

Unlock can offer a more flexible path to financial freedom if you’re stuck in a bind. If an unexpected medical bill has depleted your emergency fund and hurt your credit score, withdrawing through Unlock means you can pay your bills and not have to worry about qualifying for a refinance, paying high rates on a personal loan or juggling increased payments. .

Plus, if your home’s value increases due to upgrades, you can still pocket the difference when you sell.

Freeing up money now can also chart a better course for your future. When you’ve lost your job, your capital money doesn’t just have to pay the bills – you can also use it to further your education and start a higher-paying career.

With these benefits in mind, see if Unlock is right for you. If you have at least 20% equity in your home and a credit score of 500 or higher, it may be worth seeing if you to qualify.

The bottom line

Although a financial emergency can add a lot of stress to your life, it’s not the end of the world. Your property can give you an extra layer of protection when things go wrong, but keep in mind that it shouldn’t replace insurance or a handy emergency fund when it comes to being prepared. to a financial emergency.

Whether it’s a new baby, a car accident, or paying off your credit card debt before rates go up, Unlock can give you a quick and easy way to access the equity in your home, freeing you from financial fears in the future.

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