If you’ve been building equity in your home over the last several years, you might be considering how you can use your progress to your advantage. In this post, we’ll be taking a look at five of the smartest ways you can tap into your home equity to curb credit card debt, invest in your property, and more.
What does it mean to have home equity?
As you know, the real estate investment world is chock-full of complicated questions, like “are FHA or VA loans better for veterans?”, “can I get rich off of real estate investment?” and “when should I buy property?”.
With that said, before we jump into the ways you might want to leverage your home equity, let’s clear up any confusion you might have on the subject.
Having home equity really means that you’ve paid down a percentage of your mortgage so that you officially own the same portion in your home, decreasing the amount that your mortgage lender owns.
When you leverage your home equity, you’re essentially giving up that portion to access funds. What you do with the money is ultimately up to you, but there are some savvy ways that you can take advantage of your home equity. Here are some of those options.
1. Extinguish credit card debt
One piece of advice you might hear if you’re dealing with credit card debt is using your home equity to help you pay off your balances. Credit cards typically have high-interest rates, which can really add up when you hold onto a balance month after month. Using some of your home equity to eliminate debt, you can save serious cash on interest payments; be careful not to rack up a new balance after paying off.
2. Invest in home improvement projects
Your property is ultimately an investment, whether you intend to sell it or not. Therefore, using your home equity funds to finance your home improvements is one of the best options out there. If you do intend to sell your property, home renovations can increase its value, and if you don’t sell, you’ll get to enjoy the luxuries and comforts of your new and improved home.
Here are a few of the best value-adding improvements you can make:
- Kitchen updates
- New paint
- Bathroom remodel
- Landscaping improvements
- Exterior paint
- New windows
- Install central heating and air
- Update appliances
3. Build an emergency fund
Life is full of surprises, and more often than not, those surprises take a toll on your wallet. From car repairs to medical needs and other unexpected bills, it can help to have a little extra cash-on-hand to help you handle the financial impact.
Most financial experts recommend having a minimum of $1,000 in your emergency account, more if you have financial dependents or other special circumstances.
4. Fund you or your family’s higher education
College is pretty much a prerequisite in today’s job market, but funding higher education isn’t so easy for everyone. Using your home equity is one way you can quickly access funds to help pay for education for yourself, your spouse, or your children. Plus, ideally, your education will help you get a job that will eventually earn that money back. Think of it as an investment in yourself!
5. Launch your own business
Dreaming of becoming your own boss? Bringing your entrepreneurial vision to life? With a little confidence in your business skills and access to your home equity, you can make your dreams a reality. Launching your own business can be incredibly expensive, which is why so many business owners have to rely on crowd-funding or even using their own savings to get started. Accessing your home equity can be a viable alternative to these methods.
Just remember, any time you’re taking out a loan or using your home equity, you’ll need to have a plan for paying the amount back to your lender. As you develop your business plan, make sure you also have a strategy in place for repaying investors and other lenders.
Which of these home equity uses sounds most appealing to you? Drop us a comment in the comment section below!