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Leveraging your home's value: what to do with home equity

Chris Gottschalk

Chris Gottschalk About The Author

Aug 17, 2023 4:45:00 AM

When you buy a house, you’re not just getting a nice place to call your own. You’re also buying one of the few assets that tends to increase in value the longer you own it. Even better, you can access that value, or at least part of it, by tapping into your home’s equity.

The equity in your home is the difference between your home’s current market value and what you owe on the house. If you’ve only owned your home for a couple of years, you might not have much equity, but if you’ve been paying off your loan for a few years you potentially have tens of thousands of dollars you can draw on. The only question is, how do you put your home’s equity to good use?

Here's what to do with home equity

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How to Access Your Home's Equity in the First Place

The first step toward maximizing your home’s equity is knowing how to tap into that equity in the first place. For most people, that means taking out a home equity loan or a home equity line of credit.

A home equity loan is pretty straightforward. You’ll borrow some of your home’s equity and get it in a lump sum, which you’ll then repay to the lender in installments, the way you would with any other loan.

When you take out a home equity line of credit (or HELOC), on the other hand, you’ll be able to borrow up to a certain amount of money, and you’ll only pay interest on the money you’ve borrowed. If that weren’t appealing enough, when you make a HELOC payment, that amount becomes available for you to borrow again.

You should be aware that you won’t be able to access all of your home’s equity. Most lenders only allow you to buy up to a certain percentage of your home’s equity, and they’ll also want to do a home equity appraisal to make sure your house’s current market value is correct.

Apply for a home equity line of credit at First Alliance Credit Union.

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Adding Value to Your Home 

Maintaining and upgrading your home almost always improves its market value. When you use the equity of your home to fund a home improvement project like:

  • Remodeling a room
  • Making a repair
  • Upgrading your appliances
  • Repainting rooms
  • Residing your house
  • Building an Addition

you’re using the value of your home to add even more value. This is one of the best possible uses for your home equity money.

Cover Emergency Expenses

While an emergency fund is the best way to cover an unexpected expense, you can also get some extra protection from emergencies with a HELOC in the case of multiple emergencies, or if you’re just starting to build up your emergency fund. Just remember that, like credit cards, you should *pay off your HELOC balance* as soon as possible.

Get out of Debt

Speaking of paying off balances, if you have multiple debts, you can use a home equity loan as a debt consolidation loan. You’ll pay off your balances, reduce your payment to one convenient payment, and very likely get a lower interest rate on the amount you owe.

If you’re considering using your home’s equity to pay off your debts, just remember that you will be using your house as collateral. You’ll want to have a solid plan in place to pay off the amount you’ve borrowed, and you’ll also want to consult with a mortgage lending advisor to make sure that using your home’s equity to pay off your debts is the best choice for you.

What to do with home equity

Raise Your Credit Score

Home equity can also help you raise your credit score. By getting a HELOC and regularly borrowing from it and making payments, you'll establish a track record of paying off your loans that credit bureaus will notice. You also won't have to pay as much interest on outstanding balances as you would with a credit card

However, if you do use a HELOC for this purpose, you need to be 100% sure to use it responsibly. Only withdraw money you're certain you'll be able to repay, and always, always make your payments on time. 

Got questions about how to use your home equity? Ask us!

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Take Advantage of Your Home Equity With First Alliance Credit Union

When you buy a home, you’re getting access to that property’s equity, which will only increase as your home’s market value grows and the amount you owe decreases. You can access that money by getting a home equity loan or home equity line of credit and use it to add more value to your home with home improvement projects. Your home’s equity can also aid you in other ways, like covering an unexpected expense or even paying off your debts.

If you’re ready to take advantage of the equity in your home, talk to a First Alliance Credit Union lending advisor today. They’ll talk with you about why you want a home equity loan and how you’d like to use it, and help you figure out if a home equity loan or line of credit is the best solution for you.

We do our best to provide helpful information but we cannot guarantee the accuracy or completeness of the information presented in the article, under no circumstance does the information provided constitute legal advice. You are responsible for independently verifying the information if you intend to use it in any way. Additionally, the content is not intended to be reflective of First Alliance Credit Union’s products or services, for accurate and complete details about our product and service information you must speak to an advisor at First Alliance Credit Union.