When we have money in savings or cash, we understand where that money is, we know it is liquid, and that we can get to it. When we put money in the stock market or other types of investments, we are taking larger risks, but are hoping for a larger return. But for most families, house wealth is often their largest asset. Therefore, the question we must ask is, “Is our largest asset safe, is it liquid, and are we earning a good rate of return?” And the reason we compare those three things is because that’s how all investments are compared, whether you are buying soybeans, oil, real estate, or gold it.

Key question:

Liquidity is the use and control of your money. House Wealth is the equity in the house. It is the difference between the mortgage you owe and the home value – and for many people, their largest asset – so how do you access that money?

There are only 2 ways to access money inside your home:

• Sell the home (Incur expenses)
• Borrow (get a loan on your own asset)

Many people think “Oh, no big deal. I can borrow if I need to get to my Equity.”

Consider the liquidity of various assets:

• House equity if selling might take two to five months to get to the money inside your home. And if you want to borrow, it is a minimum of 30 to 60 days. Not all that Liquid!

The biggest hurdle, though, since borrowing is typically faster than selling, is that you must qualify to access your own money! There are four hurdles that can be challenging. To borrow, you must have:

• Good character (Stable and Responsible)
• The capacity to repay the mortgage – a good job; able to qualify for the debt
• Collateral – the house must be in good shape, must be appraised subject to market conditions
• Good credit

We see that the liquidity of our largest asset may be challenging. Unless we are ready to sell, accessing the wealth requires borrowing your own money, paying interest and fees to get back your own money. You made a down payment, you make monthly mortgage payments, all with money you earned.

It is always wise to have a home equity line of credit to access liquidity in our home and for senior homeowners over 62, be sure to have a HECM or reverse mortgage in place to access the money in your home.

Critical Points:

• Maintaining your ability to borrow is key.
• A job loss or a health issue could prevent access to your own money.
• Before making any large principal reductions, make sure you understand safety, liquidity, and rate of return and discuss that with your advisors.

Check out our other posts on House Wealth – Safety and Rate of Return (LINKS)

Short Version:

• Is your House an Asset – Is the Money in your Home Liquid
• Only 2 Ways to get to Home Wealth – Sell or Borrow (Both are expensive)
• 4 Hurdles to Borrowing House Wealth – Character/Capacity/Collateral/Credit

For all mortgage lending and HECM questions, reach us by phone, email, or schedule an in-person consultation HERE.