There’s a new market developing that guarantees your home value won’t drop — otherwise known as home equity protection. It can be expensive, but it can also help stabilize the value of your home, especially when it’s time to sell. Here’s how home equity protection works, and how to get it.
First the bad news. Home prices in the past few years have been on a steady descent. In 2005, U.S. average home values were up 12%. So far in 2009, the average value of a U.S. home was down 13%. In between, house values have fallen as much as 30% and even 40% in hard-hit areas like California, Arizona and Florida.
If that kind of roller coaster ride isn’t for you, a home equity protection plan can help. Essentially insurance policies (although technically, they’re not considered insurance) against the potential declining value of your house, home equity protection plans basically guarantee against any further losses — that is, beyond the losses you’ve suffered before you buy the policy.
Cost-wise, home equity protection plans are priced at approximately 1% to 3% of your home’s current equity at the time you apply for the policy.
The home equity protection company makes it fairly easy to figure out if you’ve got a policy payment coming or not. Analysts at these companies will average out all the homes in your zip code, and if you go to sell your home, the “insurer” will calculate any loss incurred since you purchased the policy. Then it will cut you a check for the difference, minus a 10% deductible. Note that if home prices rise, you won’t be getting any checks, and you’ll be out the money you put down for the policy in the first place.
Two companies — Austin, Tex.-based EquityLock Financial and Charlotte, N.C.-based Lighthouse Group — seem to be making the most noise in the home equity protection market.