There’s a reason housing professionals and economists keep a watchful eye on the nation’s home equity levels. Not only can home equity help families and individuals build their wealth, it can provide valuable access to resources for a variety of businesses and industries.
According to a recent press release from the National Association of Home Builders (NAHB), equity in a home was used as a source of capital to start more than 284,000 businesses (248,618 to be exact). That represents 7.3 percent of all businesses nationwide. This information originally came from recently published data from a new survey developed by the U.S. Census Bureau.
The new survey is the Annual Survey of Entrepreneurs (ASE), which collects economic and demographic information on businesses and business ownership in all major U.S. industries, according to the NAHB. The ASE gathers pertinent data on a yearly basis for three years beginning with 2014.
The 2014 ASE shows that the use of home equity as start-up capital across all industries at 7.3 percent. The survey also showed that there are six North American Industry Classification System (NAICS) industries that use home equity at higher rates, notably Accommodation and Food Services, Other Services, Retail Trade and Manufacturing. NAHB contributor Benjamin Whetzel writes, “These industries similarly experience lower rates of profitability, are often not home-based businesses, and on average assemble $50,000 to $99,999 worth of funding as start-up capital.”
In addition to measuring the use of home equity as start-up capital by industry, the ASE also looks at the demographics of company owners. According to the results of the 2014 ASE, businesses owned by women are more likely to use home equity as a source of start-up capital at 7.8 percent, compared to only 6.6 percent of businesses owned by men. Companies with equal male- and female-ownership use home equity in 10.8 percent of cases.
When looking at race, the ASE found that white business owners relied on home equity less than any other races measured at 7.3 percent. Black or African American owners used home equity in 7.8 percent of cases, Asians in 9.0 percent, American Indian and Alaskan Native at 9.1 percent, and Pacific Islander or Hawaiian in 10.0 percent.
What the ASE can teach us is that home equity not only plays a large role in contributing to U.S. business capital overall, but it is particularly important in helping women and racial minorities in the U.S. start new businesses. This further exemplifies the significance of home equity, and homeownership in general.
Options for Using Home Equity
If you’re considering tapping into your home’s equity, there are a variety of ways to do so. Here are a few examples.
Cash Out Refinancing – Refinance your home for more than what you owe and receive the difference in cash.
Home Equity Line of Credit (HELOC) – Tap into your home’s equity as needed with a line of credit, similar to a credit card. Interest rates are usually variable.
Home Equity Loan – Similar to a HELOC but typically carries a fixed interest rate and you receive the money in a lump sum.
Reverse Mortgage (for homeowners 62 or older) – Instead of you making payments, the lender pays you. Receive the loan proceeds in the form of a lump sum, monthly payments or a line of credit (or a combination of these). Note – not all mortgage lenders offer reverse mortgages.
Want to discuss some other options with a qualified mortgage professional? Give us a call at (866) 544-7013 to review financing information and get a free, no-obligation rate quote.
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