Should I Sell My House or Use the Equity?

Selling the Home: What It Involves and What It Trades

Selling is the most direct way to turn equity into money. At closing, the sale price first pays off any remaining mortgage balance and the costs of the sale. What is left goes to the seller as a lump sum, one single payment.

Several costs reduce that amount. Real estate agent commissions are often the largest. Closing costs, the fees for completing the transfer, take another share. A sale can also raise tax questions, including about capital gains, which is the profit on the sale. Those questions belong with a tax professional, who can look at the homeowner's own records.

The trade is the home itself. After a sale, the seller needs another place to live. That might mean renting, moving in with family, or buying something smaller.

Selling also ends a set of responsibilities. There are no more property taxes, homeowners insurance, upkeep or mortgage payments on that house. For a homeowner who wants to move, downsize, live closer to family or care, or step away from ownership, that release can be the point.

Using the Equity Without Selling: The Main Options

The options for staying in the home are best understood as categories, each with its own trade. This overview describes them plainly and makes no recommendation. A homeowner looking for money out of your house without selling will meet these five.

Home equity loan. A lender pays a lump sum, secured by the home. The borrower repays it in fixed monthly payments. The homeowner keeps the house but takes on a new debt.

Home equity line of credit (HELOC). A HELOC is a revolving credit line secured by the home. The borrower draws what is needed, when needed, and repays it, with monthly payments required. The CFPB notes, in its discussion of alternatives to a reverse mortgage, that home equity loans and lines may be a cheaper way to borrow, but they carry their own risks, usually have monthly payments, and depend on income and credit.

Cash-out refinance. This replaces the current mortgage with a larger one, and the borrower receives the difference in cash. The result is a new mortgage with new terms and monthly payments. The trade is that the old mortgage and its terms are gone: the borrower starts over on a new, larger loan rather than keeping the one already partly paid down.

Reverse mortgage (HECM). A Home Equity Conversion Mortgage is the only reverse mortgage insured by the federal government, available only through an FHA-approved lender, according to HUD. It is for homeowners 62 and older, and the borrower makes no monthly mortgage payments. The CFPB explains that interest and fees are added to the balance each month, so the amount owed grows over time. The borrower must use the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition. The loan must be repaid when the last borrower, co-borrower or eligible spouse sells the home, moves out or dies. The CFPB also states that neither the borrower nor the heirs will have to pay back more than the home is worth. These conditions are referred to below as the reverse mortgage conditions.

Home equity agreement. This is sometimes called a home equity investment. The homeowner receives cash now in exchange for a share of the home's future value. There are no monthly payments, but the homeowner gives up part of any rise in value. How long the agreement runs, and what event brings it to settlement, are set by each agreement's own terms, so those details sit at the center of reviewing one.

Quick Comparison: Selling vs. Equity-Access Options

The table below sets the six paths next to each other, so the main trade of each can be seen at a glance.

Table: Six ways to turn home equity into money, compared

Qualification rules vary by product and by lender, and a lender, not this site, decides eligibility and terms. For a HECM, the CFPB lists requirements that include living in the home as a principal residence, owning it outright or having a balance that can be paid off at closing, owing no federal debt, having funds for ongoing property charges, keeping the home in good shape, and completing counseling.

When Selling the Home May Be the Right Fit

Selling tends to fit when the homeowner's next chapter is already pointing somewhere else. Wanting or needing to move is the clearest signal. That move might be a relocation, downsizing to something easier to manage, or living nearer family or a care setting.

It also tends to fit when the duties of ownership have become a weight. Maintenance, property taxes and insurance continue as long as someone owns the home, and some homeowners are ready to set them down.

A homeowner who needs a large, clean lump sum and feels no strong pull to stay may find selling simpler than borrowing. There is no new debt to carry.

Selling can also fit when the next housing situation costs less than the current one, whether that is renting, a smaller home or living with family.

Finally, a house that needs major repairs can tip the balance. When the homeowner cannot, or does not want to, manage that work, a sale passes it on. These are scenarios, not advice, and the homeowner decides.

When Staying and Using the Equity May Be the Right Fit

The pull to stay is often about more than money. Neighbors, a familiar street, nearby family or a trusted doctor are real reasons. For a homeowner who needs money but doesn't want to sell, using the equity keeps those ties in place.

This path also tends to fit when the money has a specific purpose, such as repairs, medical bills, paying for long-term care, or added monthly income, and the homeowner wants to stay.

For a homeowner 62 or older who wants to stay and cannot manage monthly loan payments, a reverse mortgage may be worth exploring, subject to the reverse mortgage conditions described above. The CFPB cautions that it is an expensive way to cover a short-term need if a move may come soon.

For a homeowner who can handle monthly payments, a home equity loan, HELOC or cash-out refinance may be worth discussing with a lender.

For someone who wants cash without monthly payments but is not eligible for, or interested in, a reverse mortgage, a home equity agreement is one option, with part of the future value shared. No single option answers every situation.

Questions Worth Thinking Through Before Deciding

Before a conversation with a lender, an adviser or family, a few questions can be worth sitting with privately. These are for the homeowner's own reflection, not a checklist.

• Do I want to stay in this home, or am I open to moving? The answer often settles the first fork.
• Can I manage monthly loan payments? If not, the no-payment options and their trades come into focus.
• How much equity do I have, and how much do I need? Borrowing more than the need costs more over time.
• Is this a one-time need or an ongoing one? A lump sum and a credit line serve different purposes.
• What would I owe if I borrow against the home? Taxes, insurance and upkeep continue under every borrowing option.
• Have I spoken with a HUD-approved housing counselor? The FTC explains that a HECM applicant must first meet with a counselor from an independent government-approved housing counseling agency, who must explain costs, financial implications and alternatives. HUD's counselor roster is reachable at (800) 569-4287.

A lender determines eligibility and terms. This site offers general information only.