Most of us have spent a lot of time in our homes this past year. As our routines and needs have changed, many homeowners have found that their home is no longer working for them. If you've been in your home for at least a few years, you may be wondering if it’s time to move up to a newer or larger home.
Fortunately, for many Oahu homeowners, current real estate market conditions could make for an opportune time to trade up to a new home. Most Hawaii homeowners begin their homeownership journey with an entry-level home or condo, but once they’ve gained some home equity, they can roll those gains into a down payment on a larger home, or a home in their neighborhood of choice.
What is home equity?
Home equity simply means the portion of your home that you own outright, or your home’s value less the amount owed on your loan. There are two ways home equity increases in over time. The first is by repaying your home loan. The more that you are able to pay down your home loan, the more home equity you will have.
Home equity also grows when your home’s value rises. On Oahu, home values have appreciated, on average, by about five percent annually over the past 40 years.
For example, a couple who purchased a single-family home in 2016 for the median price at the time of $734,500 may now be ready to trade up to a larger home. Assuming their home is valued at the 2021 median price of $840,000, these homeowners have already earned $105,500 on their initial investment. This is without taking into account their monthly loan repayments, which would also increase their home equity. This same couple could now afford to purchase a more expensive home using the equity from their first home.
Homeowners who have been in their homes even longer may have made even greater gains. Those who purchased their homes when interest rates were higher could potentially lower their monthly payments when they trade up thanks to a larger down payment and near-record-low interest rates.
What’s my home equity?
To assess your home equity, you’ll need to estimate the value of your home and subtract from it the balance of your home loan.
Once you’ve estimated your home equity, there are a few ways you could use it your advantage. Some homeowners will use their equity to finance their children’s education or to cover another major expense.
However, financial professionals often advise that the best uses of home equity are to upgrade your existing home, or sell the home and reinvest in a more desirable home. Trading up to a more valuable home will help you to build long-term wealth through real estate.
It’s a good time to sell
With record-low single-family home inventory and the lowest number of re-sale condos for sale in three years, it's a seller's market. A home that’s in good condition, and is staged and priced appropriately will likely sell very quickly. Homeowners who are looking to move up should partner with a trusted Realtor® to ensure they are financially prepared to sell and purchase at the same time.
Remember, while there are fees involved in selling your home, there is no additional cost to be represented by a Realtor® when purchasing a home. Your Realtor® can also put you in touch with a knowledgeable loan officer who can advise you on financing your buy-sell transaction. For a detailed home value estimate or advice on how to trade up for a new home, contact your Locations agent.
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