How to Calculate What You Could Get for Your Property: Refinance vs. Selling for Cash
If you’re a homeowner thinking about tapping into your property’s equity, you might be weighing the options between refinancing and selling your home for cash. Understanding the costs and benefits of each can help you decide which route is best for you. Let’s walk through the process, using a property valued at $350,000 as an example.
Step 1: Assessing Your Home’s Current Value
Before making any decision, the first step is to determine your home’s current market value. In this example, let’s say your home is worth $350,000. This value will be used to calculate how much equity you have, as well as whether refinancing or selling makes the most sense.
Step 2: Calculating Your Home Equity
To calculate your equity, subtract your outstanding mortgage balance from your home’s current value.
Example:
- Current Home Value: $350,000
- Remaining Mortgage Balance: $200,000
Equity=350,000−200,000=150,000\text{Equity} = 350,000 – 200,000 = 150,000Equity=350,000−200,000=150,000
In this example, you have $150,000 in equity.
Step 3: Considering a Refinance
If you’re considering refinancing, lenders typically require that you have at least 20-30% equity in your home to qualify. Let’s assume your lender requires 30% equity:Required Equity=350,000×0.30=105,000\text{Required Equity} = 350,000 \times 0.30 = 105,000Required Equity=350,000×0.30=105,000
Since you have $150,000 in equity, you’d likely qualify for a refinance. However, refinancing comes with several costs:
- Origination Fees: Typically around 1-2% of the loan amount. For a $200,000 loan, that’s $2,000-$4,000.
- Closing Costs: Can range from 2-5% of the loan amount, adding another $4,000-$10,000.
- Current Market Rates: If interest rates are higher now than when you initially bought the home, refinancing may not save you money.
Considering these fees, you might end up paying $6,000-$14,000 just to refinance, which eats into your equity.
Step 4: Selling the Property with an Agent
If you decide to sell your home instead, here are the costs you should consider:
- Realtor Commissions: Typically 5-6% of the sale price. For a $350,000 home, that’s $17,500-$21,000.
- Closing Costs: Often around 2-4% of the sale price, costing $7,000-$14,000.
- Repairs and Appraisal Fees: Depending on the condition of your home, you might need to invest in repairs or upgrades to attract buyers. This could cost anywhere from a few thousand dollars to $10,000+.
In total, selling traditionally could cost you $25,000-$45,000 or more, significantly reducing your net proceeds.
Step 5: Selling to a Cash Buyer
Alternatively, selling your home to a cash buyer can be a hassle-free and cost-effective option:
- No Realtor Fees: You skip the 5-6% commission entirely.
- No Closing Costs: Cash buyers often cover closing costs, saving you an additional 2-4%.
- No Repairs or Appraisals: Cash buyers purchase properties as-is, so you don’t have to spend time or money on repairs.
- Quick Closing: Cash sales typically close within 7-14 days, giving you immediate access to funds.
Example: Comparing Your Options
Let’s assume your property is valued at $350,000 with a current mortgage balance of $200,000, giving you $150,000 in equity.
| Option | Estimated Costs | Equity Available | Net Cash to You |
|---|---|---|---|
| Refinance | $6,000 – $14,000 in fees | $150,000 | $136,000 – $144,000 |
| Traditional Sale | $25,000 – $45,000 in fees | $150,000 | $105,000 – $125,000 |
| Cash Sale | Minimal or no fees* | $150,000 | $140,000 – $145,000 |
*Note: Cash sale estimate assumes minimal repair costs. If significant repairs are needed to reach market value, the net cash amount may be lower.
Conclusion: Which Option Is Best for You?
- Refinance: You’d need to cover origination fees, closing costs, and possibly higher interest rates, leaving you with $136,000 – $144,000 in available equity.
- Traditional Sale: After accounting for agent fees, closing costs, and repairs, you’d walk away with $105,000 – $125,000.
- Cash Sale: By selling directly to a cash buyer with minimal fees, you could net $140,000 – $145,000, making it the most efficient option for quick access to cash.
At JCHR Holdings, LLC, we specialize in helping homeowners sell their properties quickly for cash. If you’re interested in a hassle-free sale, contact us today for a no-obligation cash offer. We’re here to make the process easy for you!
