Cash is King

There is a saying in the housing industry:

"You can't eat equity."

Equity is the difference between how much a home is worth and how much the homeowner owes against the property. So let's say you own a property worth $100,000 and you owe $75,000 (usually in the form of a mortgage). This means you have $25,000 in equity.

Having $25,000 in equity, however, is NOT the same as having $25,000 in the bank - for a few reasons. First, your money is illiquid (that which cannot quickly and easily be converted into cash). Too often, we help homeowners who have some equity (20% or more), but are completely strapped for cash. They may be sitting on $30,000 in equity, but can't make their monthly mortgage payment because their cash situation is so tight.

One way to avoid falling into this situation is to carefully consider how much money you use as a down payment when purchasing the property. Believe us, it is far better off to put too much down than nothing at all (100% financing deals are the most likely to go into foreclosure) - but you should keep a little extra money in the bank as a cushion should anything change. The general rule of thumb is to have 3 months worth of living expenses in a savings account at all times.

So how does this effect you? If you are having a difficult time paying your monthly bills but have some equity in the house, consider cutting your expenses first. Do you really need all of those cable channels? How about the car (monthly payments and gas expenses may be adding up to more than you expected)? Bad shopping habits? Trimming any unnecessary costs from your budget should get you on the right path.

If cutting your expenses still doesn't help - consider talking to one of our Solution Specialist. They will be able to help you analyze your situation and decide if refinancing (and converting some of your equity into cash) will help, or if it will put you further into the hole.