Many Triangle homeowners are now ‘equity rich;’ here’s how to cash in

RALEIGH – The value of Raleigh’s real estate market continues to increase, as do median home sale prices.  While would-be homebuyers are working to navigate a competitive market, rising prices and rising mortgage interest rates, more than 56% of Triangle area homeowners are now considered “equity rich,” according to a new report from ATTOM Data Solutions.

That’s an increase of about 95,000 homeowners in the Raleigh metropolitan statistical area (MSA) and about 26,000 in the Durham-Chapel Hill metropolitan statistical area in just the past year.

A property owner is considered “equity rich” if their the home is worth at least twice as much as the remaining balance on their mortgage.

In the Raleigh MSA, which includes Wake, Johnston and Franklin counties, there are 302,186 outstanding mortgages, according to the data.  Of those, 170,493 properties are now worth at least twice as much as the balance of the loan.

In the Durham MSA, which includes Durham, Orange, Chatham, Person and Granville counties, there are 100,565 properties with outstanding mortgage loans, and 56,802 of those are worth more than twice the remaining balance, ATTOM says.

Across the Triangle, median home sale prices increased 24.2% between March 2021 and March 2022, according to the latest data from the Triangle Multiple Listing Service.  And, a spokesperson for national real estate technology company Zillow told WRAL TechWire that the total value of the Raleigh MSA’s residential real estate market was more than $4 billion at the end of 2021.

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How homeowners can access equity

For those homeowners who have seen an increase in equity, there are an increasing number of options for how to access it.

Because lenders are able, in some cases, to provide mortgage loans of up to 80-85% of the value of the home, homeowners with a high level of equity have the option to refinance with a mortgage lender, take out a second home loan secured by the property or open a home equity line of credit.

Many Wake County residents pursued refinance loans in recent years, following the onset of the pandemic, according to the Wake County Register of Deeds office, which saw an increasing gap between the number of deeds recorded and the number of deeds of trust recorded.

A deed is filed any time a property transaction is closed, and a deed of trust is recorded when there is a mortgage loan given to a property owner by a lender.

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Options to access equity

Homeowners with equity have options, said Jon DeHart, a Durham-based mortgage broker with Movement Mortgage.

“First, they could do a cash-out refinance,” said DeHart.  That’s where a lender would qualify a borrower or borrowers based on income, a property appraisal, and other documentation, for a new mortgage.  And at closing, the lender would provide a cash payment to the homeowner, allowing that owner more cash on hand.

Then, said DeHart, there’s also taking out a home equity line of credit, which provides some advantages for homeowners.

“If you choose an equity line, you can have access to it if a need comes up,” said DeHart.  “And another advantage is that you can typically make interest-only payments.”

But with mortgage rates increasing, said DeHart, it’s important for borrowers to understand the advantages and disadvantages of the financial products they are considering.

People may use cash from a refinance or an equity line of credit for a variety of reasons, said DeHart.  One common reason, said DeHart, is to consolidate consumer debt, or to pay for something, a consumer purchase that you would need right away.

Others may choose to make home renovations.  And, for those homeowners who are considering buying a new primary residence, accessing existing home equity provides one additional mechanism some may wish to consider using in a home search.

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Buy before you sell

“You have people who do have untapped equity in their home,” said DeHart.  “But they want to purchase a home before they sell their current home.”

The reason this makes sense, explained DeHart, is that by moving out of an existing residence into a new home, the old home can be best prepared for sale.  Repairs can be completed, homes can be staged, showings can be coordinated and a deal negotiated, all without having to also live in the property and maintain it through the time it would be listed on the open market or be under contract, pending a sale.

A home equity line of credit would be a useful tool for owners to employ in this example, assuming the homeowners would qualify for it and would accept the risks associated with, possibly, holding three mortgages simultaneously.

“They can take an equity line of credit to access the equity in their home,” said DeHart.  “And then, because it would be a relatively short-term loan, as they’ll pay back the equity before rates would increase, after the sale of their current home.”

And, in the current real estate market, having extra access to capital can be the difference between winning a contract or losing it.

“They’ll be able to use the cash taken out with the equity line to put down as a down payment, or due diligence, or earnest money, in purchasing a new home,” said DeHart.

“Let’s say there’s a townhouse that they own, that is worth $400,000, and they have a remaining mortgage of $150,000,” said DeHart.  “They could take out a home equity line of up to $170,000, assuming they would qualify for the loan through regular underwriting.”

Staying put

But not everyone might be looking to move.

“Homeowners who are equity rich are in a great position,” said Joe Cianciolo, a co-founder of the technology-enabled startup HomePace, which provides a different approach than mortgage lending to homeowners looking to access the equity in their homes.

“A home is often someone’s largest asset, and it’s advantageous to be in control of as much of it as possible,” said Cianciolo.  “However, it can be difficult if they have pressing financial needs.”

Too often, home equity feels like a locked-up resource, said Cianciolo, that can’t be used.

The Salt Lake City-headquartered company launched operations in North Carolina earlier this year.

Cianciolo lives in Wake Forest, and told WRAL TechWire last month that he expects the company to be recruiting heavily in the Triangle region and to establish a Triangle office in the next 12 months.

HomePace operates with a different structure than a mortgage lender, Cianciolo told WRAL TechWire.  “Technically, it’s an option agreement,” he said.  “It’s a form of equity instead of debt.”

Think of it like how a startup might raise capital.  Sometimes, a startup will seek debt from investors, and investors will receive payments on that debt over a given period of time.  But an investor may prefer to take an equity position, which does not guarantee repayment, but could have a high upside should the company increase in value.

“We’re giving somebody a sum of money up front, and in exchange, we’re sharing in the future value of the home,” said Cianciolo.  The company provides services for existing homeowners and also for potential homebuyers, in that it can provide capital for a down payment through the company’s option agreement.

“Share in a percentage of the gain, when they decide to sell,” said Cianciolo.  “But we’ll also share in the same percentage if there’s a decline in value.”

“Among the North Carolina homeowners we’ve worked with, almost two-thirds are primarily using home equity to pay off debt,” said Cianciolo.  “Because home equity investments allow you to leverage your home equity without taking on a new loan, it’s an ideal solution for homeowners looking to pay down debt.”



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