How to Know When It’s Appropriate to Use Your Home’s Equity

Getting a home equity loan is generally a quick task, and it is fast way to get cash the homeowner believes they need at a fairly reasonable interest rate. They are the riskiest kind of loan to get, especially if someone is using the home equity loan because they are broke. In other words, there are less than a handful of good reasons to use one’s own home equity, no matter how much equity is in the home. Here are four examples of appropriate uses of home equity funds.

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Using Equity Funds to Raise the House’s Value

A practical use to an equity loan is to make improvements to the home that will actually add value. The key is knowing whether or not the improvements are worth it. Obviously, after an appraiser comes to the house before and afterwards, because home equity loans require an appraisal, the home improvements need to add more worth to the house than what was borrowed plus any interest in the meantime. Knowing what improvements add the most value is important. A consultant would know better, but luxury items like pools are expensive and do not justify the use of home equity.

Use Exactly What Is Needed to Consolidate Debt with High Interest

First, when people use equity like this, they should remember it is not a line of credit with a low interest rate. This only makes their problems worse. Next the principal and interest of all debts with an interest rate higher than what was quoted for the interest rate on the home equity loan should be added up. Then, borrow the money against the house to consolidate the principal and interest debt of all items. Pay as of the principal per month of twice a month as possible. It should be easy considering the money saved from not having to pay high interest on multiple debts, especially paying twice a month because the interest is even lower. Soon, the home owner is out of debt, which helps restore credit, and the homeowner’s credit score gets better with the equity loans paid too.

Purchase, Repair, or Advertise for Rental Properties

This takes a lot of research to purchase or advertise for units or a house to rent, but it is a justifiable reason to get a home equity loan. Purchasing a rental property like a small apartment building to start or a small house to rent can help generate passive income for a new investor, plus it builds up more equity, which increases net worth. Next, repairing rental property keeps new tenants coming, old tenants stay and raises the property value. Afterwards, the original debt should be paid off, hire a reasonable advertising firm or do your own research for free, take out more equity from the property or properties with the lowest interest rates from the right lender whether it is a bank or private lender, and use the money to increase occupancy. All a savvy, industrious investor who used their first home equity loan wisely should follow the expression of rinse and repeat. Eventually they will buy larger complexes, houses, commercial property and land to develop. This is all up to them if no mistakes are make though.

Use Home Equity as an Emergency

A sudden loss in a job is a good example. Also, an unexpected court date or large fines. Home equity is great for emergencies because interest rates are so low. In a lif or death situation, eat or starve or water and electricity due to a job loss, a low-interest, closely monitored line of credit like home equity is acceptable. Several lenders, similar to this one. It is smart to find a financial institution, such as General Electric Credit Union , in whatever area, and then, the person in need should ask the manager for the best and most compassionate loan officer.

If not handled correctly, equity loans can lead to a terrible credit score. The lender can also take legal action, and unless the entire worth is borrowed against, there are ways for lenders to get money like wage, filing liens and taking and selling pieces of property the law permits. If handled like the four examples above, especially the third one, financial comfort can be achieved quickly and intelligently. Real estate empires can even be built and flourish in the hands of the right person and an equity loan.