You can use the equity you’ve built up in your home to meet your larger financial goals. Home equity refers to the portion of your home that you actually own. You can calculate your equity by subtracting the mortgage amount you still owe from the current value of your home. Curious whether a home equity line might be right for you? See if any of the following three scenarios match your situation:
1. You have 20 percent or higher ownership in your home.
If you have at least 20 percent ownership in your home, then you are one of the over 40 million U.S. homeowners who have equity in their homes. By making on-time monthly payments, you may have acquired more equity than you realize. Having an even larger amount of home equity, 30 percent or higher, gives you and your family the opportunity to tackle projects that may require a larger financial commitment. A home equity product can allow you to put this equity to use. These funds can be used to renovate your home, to pay for your children's college education, or, for empty nesters, to increase your enjoyment in your home. You may alternatively decide to use these funds to consolidate your credit card, auto, medical, or other debt. Please note that Figure will consider loans up to 95% loan-to-value for consumers with excellent credit, so even if you have as little as 10% equity in your home, a home equity line might still be an option for you.
2. You are getting ready to sell, rent, or improve your home.
As a homeowner, you can and should look at your home as an investment that can be sold, rented, or improved at any time to further maximize its return on investment (ROI). Whether getting ready to sell or rent, or if your home could just use a pick-me-up, consider a remodeling project. Done correctly, these renovations will increase your home’s curb appeal and add value to your home.
The consensus amongst national realtors is that large renovation projects, such as kitchen remodels or creating a first-floor master suite, appeal to buyers. Smaller renovation projects, such as landscaping, new garage doors, interior and exterior painting, or installing a fence around your backyard can also positively impact the value of your home. You should speak to a local realtor to determine ways to improve the value of your home before you put it on the market to sell or rent. Now may be the ideal time to tap into your home's equity if you want to sell, to lease out your home, or to just increase your enjoyment in the property.
Renovating your home is easier with the right home equity product. A loan against your home equity typically has a lower interest rate than that of an unsecured loan, including a personal loan and credit cards. The good news is that with lower interest rates, the loan against your home equity will make your renovation more affordable, which can positively increase your project's ROI.
3. You want to enjoy more tax write-offs.
The new tax laws that went into effect in 2018 allow homeowners to still deduct interest costs against home equity debt when the loan is used to renovate the home. But, be sure to consult your tax adviser to learn about certain restrictions within this law. Deducting interest costs against large home improvement projects, new home construction, the purchase of another home, or the purchase of an investment property can result in large savings for homeowners. A loan used to complete large home improvement projects can increase the value of your current home and also provide you with a better quality of life.
According to a recent national study by NerdWallet, within the next five years, an estimated 35 percent of homeowners plan to upgrade their home to enjoy a higher quality of life, to add value to their homes, and to receive tax benefits. By taking a loan against your home equity for the purpose of increasing your home’s value and for gaining tax benefits, you can subsequently increase your equity. It is a win-win scenario for many homeowners.
Considering the above three signs will help you determine if the time is right for you to take a loan against your home equity. With the right home equity product, you can achieve your large financial goals, such as paying for college, increasing the value of your home through home improvement projects, and consolidating debt. You can also enhance the sell-ability and rent-ability of your home as you seek to capitalize on its investment potential. Go to Figure.com to learn more about Figure’s quick, fully digital, no-hassle HELOC application.