Home Equity: What Is It?
Essentially, home equity is the amount of money a homeowner owns in their home. Or, to put it another way, it is the actual market value of a property after deducting any debt attached to it.
Increasing payments on a mortgage and changing market conditions affect the value of a house over time, affecting equity.
In addition to paying off a mortgage loan, home equity can represent much more than that. The asset can be used to finance important financial needs, such as paying off debts or paying for college.
As the funds are secured by equity, home equity-based borrowing typically has lower interest rates than credit cards and personal loans.
Your equity can also grow through the appreciation of your property.
Housing cooperatives: how they work
In a cooperative, owners purchase shares rather than owning their units outright as would be the case in a condominium. It is possible for members of some co-ops to sell their shares on the open market if the board approves it, based on the current market value of co-ops in that area.
The cost of co-ops is generally less than that of rental apartments since residents pay their outstanding bills at cost. If you live in an area where the cost of living is high, such as New York City, co-ops may be an appealing option from a financial standpoint.
It is important not only to consider the financial aspects of co-op ownership, but also the social ones. A smaller co-op is run by the residents, who share responsibilities such as maintenance, landscaping, and setting rules. In large co-ops, residents may elect a board of directors.
Buying a cooperative: costs and expenses
It is important to check out the co-op’s financial situation and talk to the other residents since you are essentially purchasing shares in a company. They will be both your business partners and your neighbors in the future. Consider these factors before buying:
- Ability to lease your unit
- Pet policy
- Insurance requirements
Rather than obtaining a conventional mortgage, co-op members take out a “share loan.” Like mortgages, these loans work the same, but co-op residents must also pay a pro-rata share of the building’s operating and maintenance costs along with their loan payments to the lender.
The partnership pays these maintenance costs on a monthly basis and at cost. Annual maintenance fees may include real estate taxes, and they tend to increase with inflation each year.
Mortgage costs may also be included in the monthly fee. As a buyer, you will be entitled to all of the tax deductions that homeowners enjoy, including the deductions for interest and taxes.