3 Ways to Turn Your Home Into an Income Source
by Maurie Backman | Updated July 19, 2021 - First published on Jan. 28, 2021
Need money? Your home might score you some extra cash.
Whether life's just gotten more expensive in general or you got slammed with a surprise expense, you may reach a point where you need more money. And if you're a homeowner, you may be in luck, because your property could serve as an unexpected income source. Here are a few ways that might play out.
1. Rental income
If your home has the right setup and the zoning laws in your town allow for it, you may be able to turn part of your home into a rental unit. This is especially feasible if you have a separate area of your home with private access, like a finished basement or garage.
Or if you'd rather not share the main part of your home with a stranger, perhaps you have a friend or acquaintance who's looking for a place to live. If so, you could rent that person a bedroom for a year or two. You'd possibly need to share your kitchen, bathroom, and other common areas, but having that rental income could offset your housing costs and get you the money you need.
2. A cash-out refinance
Home values have risen over the past year, so it's a great time to apply for a cash-out refinance. With a cash-out refinance, you borrow more than what your mortgage balance is worth, and you receive the extra funds in cash that you can use as you please.
For example, if you owe $100,000 on your existing mortgage but need $15,000 to cover other bills, you can ask your mortgage lender (or another lender) for a $115,000 cash-out refinance. The first $100,000 of that would go toward paying off your existing loan, and you'd be free to take the remaining $15,000 and use it as you please.
3. A home equity loan or HELOC
With a home equity loan, you borrow a lump sum of cash that you pay back in equal monthly installments over time. With a HELOC, which stands for home equity line of credit, you don't borrow a specific amount. Rather, you get access to a line of credit you can draw from as needed. For example, you might secure a $10,000 HELOC that you can access over the course of five years. If you only end up needing to draw $8,000 of it, you won't have to pay back that extra $2,000 (and you won't accrue interest on that portion of your HELOC, either).
Make the most of your home
There are plenty of ways to access money outside of your home as well. For example, you could take out a personal loan, which allows you to borrow money for any purpose. But if you happen to be a homeowner, it pays to see if your property itself can serve as a source of income.
Of course, all of the above options come with their share of drawbacks. Taking on a tenant means bearing the risk of having them damage your home. Or, it could mean having to share your space when you'd prefer privacy. Doing a cash-out refinance means giving yourself a higher mortgage to repay, and if you fall behind on it, you'll risk losing your home. The same holds true with a home equity loan or HELOC. Since your home is used as collateral, falling behind on your payments could put you at risk of foreclosure. But despite these downsides, it's still worth looking into the different ways your home could bail you out when a need for money arises.
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