Understanding What Your Home Equity Loan Can Be Used For


Perhaps the biggest benefit of borrowing money in the form of a home equity loan is its flexibility. Typically used to cover large, long-term expenses, the cash this loan provides you borrowed against the equity value of your home can be significant depending on your financial health and how much equity you have built up.

The Basics
Before you consider how you can use this loan, you should have a firm grasp on the facts of the actual loan and process itself. Although there is a considerable amount of flexibility there will still be qualifications you need to meet and steps you need to take. Factors like your credit score, debt-to-income ratio, and a documented ability to pay back your loan are three great examples of qualifying pieces of the process. You can review a guide that includes everything you need to know about taking out a home equity loan so you can use what you have built up in the most efficient and beneficial way. You should expect about a 30–45-day period between when you close on this loan and when you receive the funds so factor that timeline into your plans when you are determining what you will use it for, and when you will begin the application process.

Debt Management
For people whose biggest goal is debt management, a home equity loan can be a favorable solution. This lump sum loan can allow for you to either pay off a singular large debt or consolidate several debts into a more manageable monthly format. If the interest rates are more favorable on your home equity loan than they are with your existing debts that using one to pay off the other will save you more money in the long run by allowing you to apply more of your payment towards principle and less towards interest.

Home Renovations
It is extremely common for homeowners to tap into their homes value to add even more value via a renovation or remodel. Depending on the size of your intended project your personal savings might not be the most economical way to fund it, and credit cards typically carry high interest rates making them a less desirable choice as well. Take some time to learn about smart ways to use your home equity for remodeling so that you have a frame of reference when you set your project budget, as well as when you discuss your intentions during the application process.

College Expenses
Tapping into your home’s equity is a great way to help cover the expenses of college, namely tuition payments. Since it is uncommon that the college student themselves will be the homeowner with the available equity to receive the loan, this scenario is a partnership typically between parents who wish to assist in the financial burden of college and their children. It is essential that every hopeful student develop a plan for college that includes paying for it. A home equity loan provides the borrower with a lump sum of cash so you will also need to plan for how that cash will be allocated and managed through the student’s overall college lifespan.