For homeowners who bought their homes before 2005, rising home values might leave them perched on top of meaningful wealth. Home prices in the U.S. have increased by an average of 90% over the last 20 years. As a consequence, the average homeowner today has amassed considerable equity he can use to cover his day-to-day expenses.
Home equity is the current market value of a home listed minus what is owed on the mortgage. Homeowners can access this equity through means such as home equity loans or home equity lines of credit (HELOCs). These financial instruments allow homeowners to access at least 80% of their home’s value. This access goes a long way to serve as a crucial lifeline to those most in need of cash.
A home equity loan gives you a one-time lump sum payment that you then pay off over a relatively traditional 20-year term. A HELOC operates as a revolving line of credit available for up to 10 years, offering flexibility for homeowners to borrow as needed. Both choices are types of second mortgages and you need to qualify under certain eligibility guidelines.
As a result, to qualify for a home equity loan or HELOC, homeowners usually must have a credit score of at least 650–680. They must keep their debt-to-income ratio below 43%. They need to have a minimum of 20% equity in their homes. One example is a house purchased for $229,000 in 2005 that has increased in value to $435,300 today. This escalation provides the owner with a considerable amount of hypothetical equity.
“Home prices across the U.S. have risen dramatically over the past few decades, in many markets doubling, tripling, or more since the early 2000s.” – Hannah Jones
Increased property values create opportunities for homeowner wealth accumulation. In 2005, that new buyer paid $229,000 for their home. By 2025, if they do nothing other than pay their mortgage on time, the amount of equity they have in their home will be around $336,117.
If you’ve owned your home since the 1990s or early 2000s, the reality is starker still. As it is these homeowners probably have homes valued a whole lot higher than their purchase prices.
“This equity isn’t just a number on paper; it’s real wealth you can use,” – Hannah Jones
Another way to access home equity is through cash-out refinancing. This process replaces an existing mortgage with a larger loan, allowing homeowners to take cash out for expenditures while still leveraging their property’s value.