How a cash-out refinance can help you pay for home upgrades
Home remodeling activity rising to new highs as home prices keep homeowners from buying a new home. (iStock)
More homeowners are choosing to remodel their homes rather than sell them and risk moving in today’s competitive housing market amid rising home sales prices. To meet the remodeling demand, cash-out refinances – in which homeowners withdraw the equity their home has built as cash – have been booming.
Maintenance and real estate remodeling activity rose for an eleventh consecutive month in May, according to the latest report from BuildFax. Housing authorizations increased by 25.88% annually, but are lagging behind construction permits, creating a severe inventory shortage. The shortage is driving up home prices while decreasing home sales, and starting bidding wars for the limited homes left on the market.
Homeowners cashed out $48 billion in refinances in the fourth quarter of 2020, according to data from Freddie Mac, up from $34.3 billion in the fourth quarter of 2019. If you want to see your refinance options while tapping record-low mortgage rates, visit Credible to compare rates from multiple lenders at once.
RISING HOME PRICES THREATEN TO OVERHEAT SUMMER HOUSING MARKET
Over the past year, remodeling activity like large-scale projects, additions, accessory dwelling units and pools increased in nearly all major metro areas in the U.S. Some regions, though, saw higher activity than others as home prices hit record highs. Remodeling activity increased 85.54% in Philadelphia and also rose 40.43% in Chicago, the Buildfax report showed. Only two major cities saw a downward trend, as Dallas dropped 5.98% and Los Angeles fell 5.58%.
Remodeling can be seen as a sign that homeowners are preparing for a home sale, but in today's highly competitive market, homeowners are also increasingly investing in their homes. They're also becoming more in refinancing their home to take advantage of today’s low mortgage rates, or using rising median home prices to pull cash out of their home.
Find your personalized rate and get prequalified by visiting Credible today.
REFINANCING FOR HOME IMPROVEMENTS: HOW DOES IT WORK?
"Despite strong housing market growth and a drop in mortgage rates in May, mortgage applications tapered off to the lowest levels seen in the pandemic months," BuildFax Managing Director Jonathan Kanarek said. "Homebuyers, once inclined to enter the market because they saw increased savings and improved job security, are now growing discouraged.
"Bidding wars and a depleted housing supply – norms in today’s housing market – have weighed down homebuyer sentiment to a record low," Kanarek said. "Meanwhile, lumber prices appear to be limiting housing starts at a time where ramping up pace of construction is imperative to get would-be homesellers and buyers back in the market."
Low home inventories and high price growth can work to the advantage of homeowners and give them more access to equity in order to pull out a cash-out refinance. If you are interested in refinancing your mortgage or taking out a home equity line of credit as mortgage rates remain at historic lows, visit Credible to compare multiple lenders at once and find the best loan option for you.
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Home price gains resulted in homeowners seeing $1.9 trillion more in home equity over the past year. That's an increase of 19.6%, according to the Q1 Homeowner Equity Insights report from CoreLogic.
"Double-digit home price growth in the past year has bolstered home equity to a record amount," CoreLogic Chief Economist Frank Nothaft said. "The national CoreLogic Home Price Index recorded an 11.4% rise in the year through March 2021, leading to a $216,000 increase in the average amount of equity held by homeowners with a mortgage."
If you're interested in seeing how much equity you have in your home as prices rise, and what cash-out refinance options are available to you, contact Credible to speak to a home loan expert and get your questions answered.
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