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Home equity could buy more elsewhere
The boom in real estate prices over the last few years has left a lot of homeowners with a tremendous amount of value in their property. With that increase comes the question of what to do with it. Should you sell, move, and pocket the money? Some thoughts follow.
More below.
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The price of houses in the United States has reached the stratosphere in the last few years. In some areas, such as parts of California, prices have tripled in just five years’ time. For buyers, this is a problem, as homes are nearly unaffordable for all but the most well-to-do of people. But for longtime homeowners, the situation is much different. Some people who have owned their home for more than five years are suddenly finding that they are sitting on a lot of money. It’s not unheard of for some owners who bought modest houses years ago to find that the equity in their home exceeds a half a million dollars.
What do you do about that?
The part of your house that you own isn’t exactly cash; you can borrow against it but you can’t take it out and spend it. And that is the problem. The only way to realize a profit from the increased equity in your property is to sell it. If you have lived in the house for more than two years, you can take up to $250,000 in proceeds without paying Federal income tax; that doubles if you are married. So it’s possible for some married couples who own just the right property to sell it and pocket up to $500,000, tax free. Then what?
The obvious answer is to move. If you live on either coast, you have seen prices skyrocket in the last few years and if you are a longtime homeowner, you have benefited from that. If you sell, you won’t be able to buy in the same area; you’d put your money (and more!) right back into another house. But you could move to another part of the country. While the coasts are expensive, many cities in the vast middle are still quite affordable.
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The median house in San Diego, for instance, how has a price of more than six hundred thousand dollars. That’s a lot of money for just about anyone; it’s very difficult to just pick up and move to San Diego unless you have a lot of money or a very promising job. But if you want to move to Des Moines, Iowa, you will find a much different situation. In Des Moines, the median home sells for about $150,000, or one quarter of what you might pay in Southern California.
Obviously, moving just to pocket some profit isn’t for everyone. Most people who have been in their homes for any length of time are pretty well entrenched in their neighborhoods, with friends and family nearby. To just pick up and move to cash out would be a pretty unusual move, but the current market is an unusual one. Prices seem to have peaked, and they are either slowly working their way down or increasing much more slowly than they have for the past five years. The opportunity to cash out of your house with a huge profit is a rare one, so if you have a substantial amount of equity, you may wish to consider it before the market changes once again.
If you have a mortgage with a high interest level, you may wish to consider refinancing. You may combine your debts and lower your monthly financial outlay. Ameriquest Mortgage can help you refinance now.
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