Many people are now seeking to purchase a home with "Instant Equity". This is the term used for purchasing a home far below market value. TV shows people making millions purchasing these homes. Unfortunately reality is not a TV show (or fortunately based on your perspective).
Real Estate Equity Loans were a Government creation to circulate additional "savings" into the economy. The additional financial fluidity looked great for a short period of time but once again the unintended consequences got us! The purpose of the loans were to allow responsible home owners to spend their home equity and stimulate the economy. The lenders did not discriminate (a euphemism for using sound judgement) based on equity percentages and time of home ownership.
Markets were thus superficially inflated, "investors" continued pulling out "equity" and living off of the "extra money" from their homes. The house of cards has collapsed! What did the investors do? Since there was not really any "equity" the Investors/magicians simply walk away and left the American public holding the bag.
The net result of this further amplified the sub prime crisis and added an entire new dimension to our financial crisis. Banks/lenders have learned from this lesson. The illusion of equity is only on paper. Banks are now more cautious about lending money for "equity". Why?
A bank lends money to generate revenue. The bank then sells the loans to investors in the stock market. The problem is that investors are no longer willing to purchase these type of "packaged loans" at the low interest rates (higher risk loans with small rates of return). The bank is left holding the bag. The banks do not have infinite resources (only our individual deposits) and can not survive on the meager rates they are charging for high risk investments.
A home was always intended to be a long term investment. We need to accept this reality. The short term appreciation rates are superficial and created by transitory programs or people (both by government and investors).
Your home equity will be there only when you sell. Do not believe the entertainment TV programs (you ever wonder why they are called "programs"?). We live in the real world. A home is a great investment for your future. Are there good deals available even in Charlotte Real Estate (Charlotte NC was not as superficially inflated so the drop is very small value/price)? Yes.
Is there instant equity? Yes and no. You need to accept this equity is in the future and currently only on paper. It is not real until you sell your home. How much is your home worth? It is worth exactly what a willing and able buyer is willing to pay. If you just purchased the home for "X" amount of dollars then you have just established the market value. There is no equity.
Sweat equity: This illusive term equates to money that the seller discounted the home based on the repairs needed. You can purchase a $200,000 home for $150,000 but need to invest another $50,000 to in order to see the $50,000 in home equity. Yes, you can do much of the work yourself. Question: if you have just performed $50,000 worth of construction work to regain your "equity", was the risk of purchasing the home really worth it?
There is a lot to consider about home equity but be very careful before tapping into this fund. Lenders are not likely to give you mare than 80 percent of you appraised value and you will pay money for the appraisal and the loan (additional equity that you lose). What will be the appraised value after you just purchased your home? Exactly what you paid for it! Be wise, be careful and purchase a home based on real value and not "perceived value".
