Here's What to Do if You Own a Home and Are on Social Security

by Maurie Backman | Published on Sept. 10, 2021

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An older couple sit and go over their finances.

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Struggling to get by on Social Security? Your home could be the solution.

There's a reason why people are often advised to save for retirement in a 401(k) or IRA. Social Security generally doesn't pay older adults enough money to live comfortably. According to the Social Security Administration, the average retired worker today collects $1,543 a month, which helps pay some of the bills, but it may not cover all expenses.

If you're struggling to make ends meet on Social Security, and you also own a home, you may be able to use it to your advantage. Here are some things you can do to turn your home into an income source.

1. Get a home equity loan or line of credit

Many people own their homes outright by the time they start collecting Social Security benefits -- meaning, they no longer owe money on their mortgages. If that's the case and you need to boost your income, you could try borrowing against your home via a home equity loan or a home equity line of credit (HELOC). Both of these options are fairly easy to qualify for when you're sitting on a mortgage-free property.

That said, there's a danger in taking out a home equity loan or HELOC: If you don't pay it back, you'll risk losing your home. But if your need for money is temporary, this solution may work. Otherwise, you're better off exploring a different option.

2. Get a tenant

Not every home is set up in a way that makes it easy to take on a tenant, and in some areas, zoning laws may prohibit you from renting out a portion of your home. But if you have a finished basement, garage, or other separate area of your home that can serve as a private living space, then it pays to look at getting a tenant. The rent you collect every month could serve as a solid income boost.

3. Do a cash-out refinance

Not everyone enters retirement mortgage free. If you're on Social Security but still owe money on your home, you may be in luck. Right now, home values are up on a national level, which means you're likely to qualify for a cash-out refinance.

With a regular refinance, you swap your existing mortgage for a new one in the same amount. With a cash-out refinance, however, you borrow more than your existing loan balance, and the extra cash is yours to use as you please.

Today's refinance rates are really low, so if you do a cash-out refinance, you may be able to keep your existing mortgage payment as it is while also taking cash out of your home.

For example, say your mortgage balance is $80,000 but your home is worth $250,000. If you can lower the interest rate on your mortgage substantially, you may be able to do a cash-out refinance where you borrow $100,000 without really adding to your monthly mortgage payments.

The first $80,000 of that $100,000 would go to satisfy your current loan balance, but the remaining $20,000 would go to you. You could then use that money to supplement your Social Security income.

Living solely or mostly on Social Security isn't easy. If you own a home, you do have some options for generating more cash. Take the time to explore them thoroughly so you can make your financial situation a little more comfortable.

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