Your house is your home base, but it can also be a valuable source of extra funds.
When financial troubles hit, finding a way to come up with extra cash can be stressful. Even if money issues aren’t necessarily a day-to-day concern, many people run into situations where they need additional funds for business ventures, college tuition, or other hefty expenses.
Either way, everyone deserves to know how to access the assets of their home, and this article will help you do just that. Read on for everything you need to know about tapping into your home’s equity!
#1 Home Equity Line of Credit (HELOC)
A home equity line of credit—or HELOC—will essentially turn your mortgage into a credit card.
Taking out a HELOC adds a second loan onto your home, with a few additional circumstances. The money you take out will work in a revolving line of credit, which can be paid off, then used again, in a cyclical fashion.
Most HELOCs have long repayment periods—anywhere from 10 to 30 years. This gives homeowners a long time to utilize their loan. However, a HELOC can also come with a few downsides. Some of the risks you should look out for with this type of credit include:
- High interest rates
- Longer periods of debt
- Expensive monthly bills
- Restrictive payment plans
Despite these challenges, a HELOC is still a good option for those who want long-term access to their home’s equity. However, if you’re looking to make a single investment with your money, the other strategies on the list may be more viable for your situation.
#2 Take Out A Regular Second Mortgage
A simpler way to access your home’s equity is by taking out a standard second mortgage—also known as a home equity loan. If you’re not familiar with this process, here’s the basic idea: a second mortgage is essentially a loan that’s secured by your property. This money can be used for other purposes, but your house will be used as collateral in the event you fail to pay it back.
This can sound intimidating, but it’s actually common among homeowners. The benefit of taking out a second mortgage is that you’re building off the reputation you’ve already secured with your first loan. When lenders know that you’re responsible enough to pay back the money you borrowed to purchase your house, they’re more willing to give you additional funds for other purposes.
You may be thinking, I don’t have the credit for a second mortgage. In this case, have you considered an FHA or VA loan? These plans have lower qualifications when it comes to monthly income and credit score, making them great options for those who want to access their home equity but are concerned about meeting the standard for a typical loan.
#3 Cash-Out Refinance
A cash-out refinance is the only option that doesn’t require taking out a second mortgage. Instead, this method involves increasing your original mortgage, and taking out the difference in cash.
Homeowners who choose a cash-out refinance should be aware of the restrictions and specifics of this type of equity. The main points to note when considering a cash-out refinance are:
- Purpose – Most refinancing is done for property-related purposes. Have you been thinking about remodeling? If so, renovations are typically the biggest reason homeowners choose this option, in order to increase property value and ultimately make their money back in the near future.
- Interest – Cash-out refinancing may be subject to significantly higher interest rates. This is why it’s typically done for only a short amount of time.
- Qualifications – Lenders will usually limit cash-out refinances to applicants with high credit scores, due to the risky nature of this loan. Your lender may also ask what you’re going to do with the money and deny those who lack a solid plan upfront.
You’re Entitled to The Value of Your Home
As a homeowner, you have more assets than you may realize.
Everyone needs a little assistance at times. Tapping into the equity of your property is a great way to finance large purchases without draining your bank account. If done responsibly, any of these methods should be able to help your finances flourish!