Fires And Floods And Hurricanes-Oh My! What American Homeowners Can Do To Protect Their Biggest Asset

The recent flooding along the Mississippi River and the current fires in California highlight a growing trend in America- more and more natural disasters are destroying Americans' homes, and many are needlessly losing their home equity. A few simple strategies can help you avoid risking your home equity in an emergency. It seems more and more natural disasters and whacky weather assail us with each passing summer. Whether you’re in the fire/mudslide/earthquake Western U.S. zone, the tornado/flood zone of the South and Midwest, or the tornado/flood/hurricane zone of the East, Mother Nature seems to have surprises in store for us all from time to time. All of this is part of nature, but it’s saddening how under informed people are about the financial risks they are taking by following traditional advice when it comes to protecting their #1 asset- their homes. Take home equity, for instance. Every year, tens of thousands of Americans lose their home because they leave their equity trapped in it, and when an emergency comes up they can’t get access to it. Or something happens to the house- think of the Hurricane Katrina disaster- and they have to wait for eons to get their own money back. Traditional thinking limits us in many ways. For example, most of us are taught to pay our house off. It’s good advice as far as paying less interest, but at what risk? Home equity is a large chunk of most Americans’ total wealth, and one should contend that it’s needlessly at risk of being lost.nYou could simply take the “access test.” When something happens to you or your house, would you rather have your money tied up where you can’t get to it or would you like to have it liquid? On page 76 of my book “Why Didn’t Anyone Teach Me This?” (www.FinancialPlanning202.com) I told the following sad yet all-too-common story: “When I was a loan officer, I watched a guy lose $100K of his home equity because he got laid off and didn’t qualify to get a loan to refinance his house. Sadly, he lost the house to foreclosure.”n nThe moral of the story is you can’t control the weather, but you can control how liquid your home equity is. Have access to it while everything is fine… refinance it to 100% LTV or have a Home Equity Line of Credit (HELOC) open on it. Just make sure you get one that is convertible to a fixed rate second mortgage if you have to use more than 50% of it. If a natural disaster swings through your area, deposit your entire HELOC in your bank account as part of your preparation plans. That way the bank is risking not getting paid by the insurance company instead of you, and you’ll have extra cash on hand to pay your bills as you recover. When the storms of life come, either through financial emergency or natural disaster, you’ll be in a much better position. And if you’re willing to grow your thinking enough to grasp and implement this strategy, you may even be able to break even or make a profit safely on your home equity while keeping it liquid. But only if you’re willing to do the mental work of thinking.nn