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I cringed when I heard the pitch on a radio commercial the other day. “Your home is your bank!” The gist of the thing was that you could pull the equity out of your home to “pay down debt, remodel, or take that vacation you’ve always dreamed about!”
Oh no, not again.
With the exception of home prices rising to the inflated values of the boom time, the housing bust is far behind us. You’d think both lenders and homeowners would have learned their lesson from 10 short years ago. But it seems we may be headed once again down that not-so-primrose path.
The memory of the meltdown is still all too fresh in my mind.
I remember seeing my neighbors having custom shutters installed on the new home they just barely qualified for, while we had paper blinds. I asked myself, “how could they possibly afford that?” Well, they couldn’t, and less than a year later, the house (and the shutters) went back to the bank. Why? Because they bought into the “cash in your equity” craze. They counted on the housing market going up forever. It never does.
When buying a home, you can put as little as zero percent down. I’m not your financial advisor, but I’d suggest you look long and hard at leveraging yourself too much. Having equity in your home protects you from market drops and provides you (at least theoretically) with a bit of a nest egg for your later years. Just because you “qualify” for a home loan or an equity line doesn’t mean you can afford it.
In 2005-ish, everybody was a real estate guru and an investment genius. Come 2008, way too many were financially ruined. I know firsthand. I sat across the kitchen table from far too many tearful homeowners who were painted into a red corner with no way out but to punt.
Don’t go there, folks. Your house is your home, not an ATM.