Ideas for the Cash-Needy Homeowner

If you’re short on cash but own a home, you’re in luck. You can transform your home from a money pit to a cash cow in a variety of ways. The methods you can use range from refinancing your mortgage to starting a business at home.

Cash-Out Refinancing

Cash-out refinancing allows you to pocket some money simply by refinancing your mortgage. Say you owe $100,000 on a home worth $200,000. You could refinance for $125,000 and pocket the extra $25,000. Note that your mortgage is now higher, which means it will probably take you longer to pay it off. In addition, you typically need to pay closing costs when you refinance because you're replacing your current mortgage with a new one. Cash-out refinancing benefits you only if you can refinance your loan at a lower rate than what you currently pay.

Home Equity Loan or Line of Credit

A home equity loan or line of credit, also called a second mortgage, allows you to use the equity in your home like your personal bank account. The advantage of getting either type of loan is that both usually have a lower interest rate than credit cards. The difference between them is that a home equity loan is a lump-sum amount with a fixed interest rate; you make the same payments every month to pay it back. A home equity line of credit is revolving credit that acts more like a credit card and has an adjustable interest rate. You are granted a line of credit that you can tap into as needed, usually making monthly interest-only payments. Your lender sets a date by which the amount needs to be paid back.

Rent a Room

Check with local authorities or with your homeowner's association to determine whether you can rent out a room or the basement. Typically, you need a permit to rent the basement, but you don’t usually need one when you rent an extra bedroom. Treat the situation as a business deal, not as a friendship, said Helene Prince, a property management director for Coldwell Banker, in Bankrate.com. Have written rules, charge a security deposit, pay for a background check, and have the tenant sign a lease. Check your homeowners insurance policy to determine whether you need to add landlord’s insurance. Strongly suggest that your tenant secures renter’s insurance.

Home-Based Business

Check with local authorities or with your homeowner's association to determine whether you can start a business from your home. If you're good with children, you could start a day-care center or a babysitting service for kids who would otherwise come home to an empty house after school until their parents get off work. If you’re artistic, create a space in your home where you throw art parties to teach people to make their own works of art. You provide the space, some appetizers and beverages, the art supplies and the instruction. Charge between $25 and $50 per person.