5 Creative Ways to Use Home Equity to Your Financial Advantage

Homeowners who have paid their mortgage payments on time for years have built up equity in their homes. Equity is a precious commodity for all property owners and gives them a way to finance several projects throughout the term of their mortgage loan contracts. Lenders don’t impose limitations on how the homeowners can use their equity. It belongs to the property owner and enables them to complete everything from home improvement projects to paying for college degree programs. Property owners who want to discover more about their options can review the 5 creative ways to use home equity to their financial advantage.

Using the home equity or a non qualified mortgage loan gives the homeowner the funds they need for a debt-related emergency and keeps them from facing further financial problems.

1. Settle Your Debts

Property owners use home equity to settle their debts. They have the option to get a home equity loan or a home equity line of credit. Both options provide owners with access to the funds they need to pay off their debts. Their home equity belongs to them already, and homeowners can access it at any time. Paying off the debts improves the owner’s credit rating. Keeping the credit scores higher than average helps the property owner avoid financial issues in the future. A higher-than-average credit score gives them access to financing, top-earning job positions, and keeps vital doors open.

To qualify for the home equity loan, the property owner must have equity that is at least 20% of the home’s value. The owner needs a credit score of at least 620 and a history of paying all their debts on time. Their income-to-debt ratio cannot exceed 43% or the homeowner won’t qualify for the home equity loan. When evaluating the property owner, the lenders review all three credit reports and review the credit scores. Any indications of slow or late payments could disqualify the property owner quickly.

Homeowners who are facing financial hardships could access their home equity to pay their monthly payments until they can bounce back from the current crisis. The action could lower the chances of defaulting on mortgage loans and other monthly obligations. Using the home equity gives the homeowner the funds they need for a debt-related emergency and keeps them from facing further financial problems. To learn more about home equity and other loan products for settling debts, look at National Debt Relief now.

2. Buy a Vacation Home or Second Property

Homeowners who want to invest in more real estate access their home equity to get the capital they need for the down payment. A home equity loan is the most effective way to get a down payment since the loans are available in a lump sum. Property owners acquire the funds in a short amount of time and use it immediately for the new property. Vacation homes and second properties are great investments for current homeowners. How they use the property defines when the property owner should buy their next property.

For example, if they want a rental property, the buyer should evaluate the demand for rental property in the preferred location. The amount of rent they could get for the property each month determines if the investment provides sufficient income. With the right plan, the property owner could generate enough money to pay back their home equity loan. After the loan is repaid, the property owner gets more out of their investment without incurring debts that are hard to repay.

When getting a home equity loan, the homeowner enters into a repayment plan for up to ten years. They receive a fixed interest rate that won’t change over time. It enables the property owner to settle the debt over time and restore the equity in their home for future use. However, the property owner needs a great credit score to get the best home equity loan through a private lender.

For property owners who have stellar credit, the fixed rate is lower than average. Since it stays consistent, the property owner won’t face sudden increases in their loan payments or unexpected financial crisis. However, if the owner doesn’t have a high credit score, the fixed-rate could lead to difficulties if they face any decreasing in income or if they lose their job within the next ten years.

3. Home Improvement Projects

Home improvement projects could prove costly for the homeowner without proper planning and budgeting. A home equity line of credit could provide the owner with the funds they need to complete the project over an extended period of time. It offers access to the full amount of equity the owner has incurred over the years. Since there isn’t a guarantee that a home improvement project will stay within the budget, the line of credit enables the homeowner to continue to access funds as they need them.

If the project costs increase, it doesn’t present a problem if they use the line of credit instead of a loan. If they choose a home equity loan, the owner has access to one lump sum as approved by their lender. However, once the funds are gone, the owner cannot acquire any more money through their equity.

Additionally, the home equity loan could increase the owner’s overall cost for the home improvement project. The owner cannot change the amount of the home equity loan if they don’t need the full amount. However, the line of credit works like a credit card with a set credit limit. The property owner uses what they need through the home equity line of credit and isn’t required to use the full amount of the line of credit if they don’t want it. At the end of the access period, the homeowner pays back the amount they use instead of the entire amount of the home equity line of credit. The line of credit gives the homeowner more control over how much equity they use within the ten-year period and how much they are required to repay at the end of the term.

To qualify for a home equity line of credit, the homeowner must have a credit score of at least 760. Their income-to-debt ratio cannot exceed 40%. The property owner has the opportunity to borrow up to 85% of their equity through the line of credit.

4. Pay for College Tuition

Paying college tuition with home equity gives the property owner two major advantages. First, they are using their own investment to pay for their college education, and it isn’t a new loan they obtained from a different lender. Next, the property owner gets the full benefit of obtaining a college degree and advances in their current career. Completing a college education improves the property owner’s ability to get a better job and makes them a better asset for local companies. Some employers accept an advance degree in lieu of experience, and this helps some individuals qualify for more impressive jobs. For example, a homeowner who uses their home equity to pay for college could qualify for a top position if they obtain a master’s degree.

Unlike more traditional financing options, the owner is basically repaying themselves after using the equity. Depending on how much equity they withdraw, the homeowner could keep their costs minimal and acquire a better interest rate for their home loan if they need to refinance later. The homeowner won’t face the negative repercussions of obtaining a separate loan or line of credit, such as overextending themselves financially or damaging their credit. There isn’t a rush to pay back the home equity loan or line of credit since the repayment period is up to 30 years, and the homeowner doesn’t face a serious financial hardship by accessing the equity.

Investing in their education could give the homeowner access to top salary and benefits packages. A higher degree offers an almost immediate return on their investment. It is also beneficial for homeowners who are ready to make a serious change in their life.

5. Fund a New Business

Homeowners who are ready for a new adventure could use their equity as capital for a new business. When approaching the venture, the homeowner needs a comprehensive business plan that shows how the business will generate profits over the next few years. They must take the steps to establish the business, including getting a business license and find a property for the company. A home equity line of credit is a better choice for the venture and provides funds throughout a ten year period. The new business owner won’t have to worry about running out of funds too quickly and seeing their business fail.

Property owners tap into their home equity for numerous reasons, and they use the funds during a variety of life events. Home improvement projects lead to high costs even if the owner creates a careful plan, and they aren’t guaranteed that the projects remain within their budget. If they want to attend college or get an advanced degree, the property owner acquires a line of credit to use their home equity instead of borrowing student loans. Property owners who explore all their options and get creative can get the most out of their equity and truly use it to their advantage.