What to Do When You’re House-Rich but Cash-Poor

Imagine sitting on wealth but feeling broke when you look at your bank account. That’s what it’s like to be “house-rich cash-poor,” meaning you have equity in your home but lack the cash to build emergency savings, plan for retirement, or fund other financial goals. 

Collectively, U.S. homeowners have $35 trillion in equity. If you’re a homeowner who is house-rich but cash-poor, read on to learn how to tap your home for cash. 

House-rich but cash-poor meaning 

Being house-rich but cash-poor means you have wealth but it’s tied up in your home equity. Equity is the difference between what you owe on your home and its value. When you’re cash-poor, you can’t save or make headway with your financial goals because most of your money goes to bills. 

A house-rich, cash-poor scenario can happen if you:

• Take on a larger mortgage than you can afford
• Buy a more expensive home or relocate to an area with a higher cost of living
• Lose your job or can’t work because of an illness or injury
• Experience a financial emergency that wipes out your savings

How do you know if you’re house-rich cash-poor? The simple answer is you might be if you have equity in your home but struggle to cover basic living expenses or have nothing left to put in savings. While being house-rich and cash-poor is not ideal, it’s a fixable situation. 

There are many variables that alter the following advice. However, when I find homeowners in this position, I recommend setting up a home equity line of credit but not using it as a strategic way to have access to funds in case of emergencies. This is pivotal for providing needed liquidity. The goal is to keep the HELOC funds out of sight, out of mind as a reserve for emergencies only. 

If you begin to tap into it for minor expenses that should be planned for in their regular cash flow, it can make the debt load worse.

Eric Kirste, CFP®

Options to access your home equity 

If you have equity in your home, there are multiple paths to unlocking it when you need cash. The best solution for accessing your equity depends on your needs and budget. 

Home equity loan

A home equity loan lets you take out equity in a lump sum and use the money any way you’d like. When you get a home equity loan, you’re effectively taking out a second mortgage on the property. You still own the home. 

Home equity loans are repaid in monthly installments, with interest. Interest rates are usually fixed, meaning your rate won’t change over the life of the loan. A typical home equity loan term is 20 years, but lenders may offer terms ranging from five to 30 years. 

Who is a home equity loan best for?

A home equity loan may appeal to homeowners who want to borrow a lump sum and can comfortably handle two mortgage payments. Home equity loans are also best for borrowers with good credit looking for a low, fixed interest rate. 

Example

Say you owe $300,000 on your home, valued at $500,000. Your LTV is 60%, allowing you to borrow up to $100,000. You get a $100,000 home equity loan at 7.75%, with a 20-year term, which puts your monthly payments at $820. 

Home equity line of credit (HELOC)

A home equity line of credit is a revolving line of credit you can borrow against as needed. You only pay interest on the part of your credit line you use, and you still own your home. 

HELOCs can have fixed or variable interest rates. A variable rate can adjust higher or lower to reflect changes in an underlying benchmark rate. Variable-rate HELOCs offer less predictability since your payments can change if your rate changes. 

How do you repay a HELOC?

HELOCs have a draw period and a repayment period. During the draw period, which may last five to 15 years, you can use your line of credit. You may be expected to make interest-only payments during this period. 

Once the draw period ends, you’ll enter the repayment period, which typically lasts 20 years. During this period, you’ll pay interest and principal. 

Who is a HELOC best for?

A HELOC may be best for homeowners who prefer flexibility and aren’t sure exactly how much cash they’ll need. Your lender may give you multiple ways to access your line of credit, including paper checks, a debit card, or withdrawals at a branch. You don’t have to use your entire credit line if you don’t need it. 

Example

Assume your home is valued at $500,000, and you owe $300,000 on the mortgage, giving you $200,000 in equity. With a lender offering a HELOC with an 80% loan-to-value (LTV) limit, you could access up to $100,000. 

You open a $100,000 HELOC with a 10-year draw period and a 7% variable interest rate. In the first year, you borrow $20,000 for renovations, making interest-only payments of around $117 per month.

If you don’t borrow more, the HELOC transitions to a 20-year repayment period after the draw period ends, with monthly payments of about $155 to cover both principal and interest, assuming the rate stays the same. This setup offers flexibility, allowing you to borrow more or pay off the balance early to save on interest.

Home equity sharing agreement

A home equity sharing agreement allows you to exchange a portion of your home’s future value for cash. Here’s how it works:

• A home equity sharing company advances money to you based on the appraised value of your home. 
• You repay the original amount plus some of your home’s appreciation value at a future date. 

You still own the home while the agreement is in place, and you can continue living in the property. There are no monthly payments required. 

Who is a home equity sharing agreement best for?

A home equity sharing agreement may be best for homeowners who want to access their equity but don’t want to take on debt or can’t get approved for a home equity loan or HELOC. 

You’ll also have to consider what happens when repayment is due, which may be 10 to 30 years in the future. You’ll either need to save the money you’ll need or plan to sell the home when the time comes. 

Example

Assume your home is worth $500,000, and you owe $300,000 on the mortgage. You get $50,000 in cash from your equity and agree to repay that amount plus 20% of your home’s appreciation in 10 years. 

At the end of 10 years, your home’s value has increased to $677,000. You’ll repay the original $50,000 in equity plus 20% of the appreciation or $135,000. 

Home sale-leaseback

A home sale-leaseback allows you to sell your home to a buyer and remain in the property as a tenant. You get the proceeds from the sale of the home and make rent payments to the new owner for an agreed-upon term. This is not a loan, and you will no longer own the home once the agreement is in place. 

Who is a home sale-leaseback best for?

Leaseback arrangements may appeal to homeowners planning a move but need a short-term rental until their new home is ready. They’re also an option that retirees may consider if they don’t qualify for a reverse mortgage or don’t want to borrow against their equity with a loan. 

Example

You owe $300,000 on a home that’s worth $500,000. You enter into a leaseback agreement to sell the home and rent it for the next 24 months. At closing, you get your $200,000 in equity and pay the new owner $1,500 monthly rent until your lease ends. 

Several personal factors will guide the right choice when using your home equity to free up cash. 

The HELOC, in my opinion, is the best to have as an emergency source of funds. The home equity loan is best as a planned source of funds of a single amount, like a major repair that you can’t afford from your regular budget. 

The other items—home equity agreement and home sale-leaseback are for more extreme scenarios and need additional planning to ensure those are chosen for the correct reasons to fit  your personal and financial needs.

Eric Kirste, CFP®

Cash flow strategies without taking on new debt

When you’re house-rich and cash-poor, taking on new debt through a home equity loan or a HELOC may not always be the best option. Consider strategies to generate additional cash flow or free up funds without increasing your financial liabilities. Here are three effective strategies.

Rent out a portion of your home

One of the simplest ways to increase your cash flow without taking on new debt is to rent out part of your home. If you have unused space—a spare bedroom, finished basement, or garage—you can turn that area into a rental property. This provides you with passive income you can use to offset your mortgage payments or cover other essential expenses.

Airbnb and similar platforms make it easy to list your property for short-term rentals, and traditional rental agreements offer more long-term stability. 

Before renting, check local regulations and ensure you’re prepared for the responsibilities of being a landlord. Renting out part of your home can benefit homeowners in high-demand areas, particularly where rental prices can significantly boost your monthly income.

Downsize your home

If you’re struggling with high mortgage payments and other home-related expenses, downsizing could be a practical solution. 

Selling your current home and moving into a smaller, less expensive property will free up cash from the sale while reducing your monthly housing costs, such as mortgage payments, utilities, and maintenance.

Although selling a home can be time-consuming, the long-term financial benefits often outweigh the temporary inconvenience. Downsizing can help you eliminate your cash-poor status while maintaining homeownership. 

This strategy is ideal for homeowners whose property value has appreciated significantly: They can capitalize on their home equity while moving into a more affordable situation.

Budget and cut costs

Creating a strict budget is another essential step for improving your cash flow. Start by evaluating your income and fixed expenses, including your mortgage, utilities, and insurance, and then look for areas where you can cut back. 

This might include reducing discretionary spending, such as dining out or entertainment, or finding more affordable services for internet, insurance, or groceries.

In addition to cutting day-to-day expenses, homeowners should plan for annual costs, such as home maintenance and property taxes. By allocating funds toward an emergency savings account and making savings automatic, you can avoid financial surprises that might otherwise worsen your cash-poor status. 

A well-structured budget ensures you live within your means, reducing financial stress over time.

Benefits of being house-rich but cash-poor

Forced savings plan

You continue accumulating equity as you pay down the mortgage, provided home values remain stable.

Sense of security

Owning a valuable asset offers peace of mind.

Access to equity

You can draw cash from your home’s equity if needed.

Downsides of being house-rich but cash-poor

Lack of liquid cash

You may struggle to cover unexpected expenses.

Potential for high-interest debt

You might have to rely on credit cards to manage emergencies, adding to your debt burden.

Financial stress

Worrying about cash flow can cause ongoing anxiety.

Delayed financial goals

Savings or debt repayment plans may be put on hold.

A major risk of being house-rich and cash-poor is owning a house in a slow-growing area. If the alternative is to invest in other, better-performing assets over the long term, the house may set you back. The opposite may be true if you live in a high-growing real estate market. However, the most critical downside is not having liquidity or other savings for short and long-term needs.

Eric Kirste, CFP®

What to avoid when you’re house-rich but cash-poor 

If you’re in this situation, it helps to know what NOT to do. Here are some things to avoid when you’re house-rich, cash-poor. 

• Don’t neglect repairs, maintenance, or upkeep since that could detract from your home’s value. 
• Avoid taking on high-interest debt if possible, so you have fewer bills to pay each month. 
• Don’t assume that savings can wait. Even if you can only set aside $5 per paycheck, that’s money you can add to an emergency fund. 

Lastly, don’t assume that you can’t fix your situation. Increasing income, reducing housing costs, and cutting other expenses can help you get on even ground. 

FAQ

Is refinancing an option if I’m house-rich but cash-poor?

Refinancing can be an option if you’re house-rich but cash-poor, but it’s not always the most favorable choice. While refinancing can lower your monthly payments by extending the loan term or securing a lower interest rate, it also involves closing costs and fees, which may require upfront cash.

In a high-interest-rate environment, refinancing could result in higher overall costs, especially if you secured your original mortgage at a lower rate. For some, the better alternative might be a home equity loan, HELOC, or another cash flow strategy.

What are asset-rich, cash-poor mortgages?

Asset-rich, cash-poor mortgages are designed for homeowners who have significant equity or other valuable assets but lack liquid cash to cover expenses. These mortgages allow individuals to leverage the value of their property or other assets to secure loans, including home equity loans, HELOCs, and reverse mortgages for those who qualify. 

Some lenders may offer specialized mortgages that take your overall asset portfolio into account, making it easier to borrow even if you have limited monthly cash flow.

What is the difference between asset-rich and house-rich?

Being asset-rich means having significant wealth tied up in various valuable assets, such as real estate, stocks, bonds, or other investments. These assets can appreciate in value over time, but they are not always easy to liquidate for cash. 

On the other hand, being house-rich refers specifically to having a large portion of your wealth tied up in your home’s equity. In this case, while you may own a valuable property, you might lack access to liquid cash to cover day-to-day expenses or financial emergencies.

Diversification is a strong benefit of being invested in other assets. However, another component here is the potential growth rate of the assets you own. You can be diversified in slow-growing assets, and the same goes for your home. If your house is located in a slow-growing or less desirable area, this can impact any high-valued home.

Eric Kirste, CFP®

Can I access home equity if I have bad credit?

Yes, you can still access home equity if you have bad credit, though your options may be more limited. Traditional home equity loans and HELOCs typically require a good credit score, but alternative solutions, such as home equity sharing agreements and sale-leaseback options, might be more suitable. 

These methods allow homeowners to tap into their home equity without taking on new debt or dealing with strict credit requirements. For example, home equity sharing agreements provide cash in exchange for a share of your home’s future value, making them accessible to homeowners who may not qualify for conventional loans.

How can I prevent becoming house-rich but cash-poor in the future?

Preventing the situation of being house-rich but cash-poor requires careful financial planning. 

First, ensure you buy a home that fits within your long-term budget, taking into account not just the mortgage but also taxes, insurance, and maintenance costs. Building an emergency fund to cover unexpected expenses is another essential strategy. 

Maintaining a diversified financial portfolio with liquid assets (e.g., savings or investments) and appreciating assets (such as real estate) will help provide more financial flexibility and prevent cash flow issues down the road.

Is it better to sell my home if I’m house-rich but cash-poor?

Selling your home could be a viable solution if you’re house-rich but cash-poor; it depends on your financial situation and long-term goals. 

Downsizing to a smaller, less expensive property can free up the equity in your current home, providing you with liquid cash to cover ongoing expenses and reduce your housing costs. This is beneficial if maintaining your current home is financially unsustainable or if you no longer need the space.

However, selling your home isn’t always the best first option. Alternatives such as renting out part of your home, exploring home equity loans or HELOCs, or entering into a home equity sharing agreement (HESA) or sale-leaseback could allow you to stay in your home while accessing the cash you need. 

Consider selling only after evaluating these alternatives. The costs and logistics of moving, plus potential emotional attachment to the property, could outweigh the benefits.

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