There are so many benefits to being a homeowner. A huge benefit of homeownership is the ability to utilize your home’s equity as a secret weapon. A home equity line of credit (HELOC) provides a convenient way for homeowners to access funds for various purposes, such as home improvements, debt consolidation, education, or unexpected expenses. In today’s blog, we’ll give you the basics of a HELOC and the best instances to tap into your home’s equity!
What Is a Home Equity Line of Credit?
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A home equity line of credit is a type of second mortgage that can be used for various large expenses. A HELOC is a revolving line of credit that is borrowed against your available equity in your home. This line of credit operates similarly to a credit card — you can borrow the amount of money you need and then repay it over time. The benefits of a HELOC include:
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Allows you to borrow small amounts of money over time
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Lower monthly payments
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Assistance with avoiding accumulating large amounts of unnecessary debt
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Flexible repayment options with no fees to use the funds
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Interest paid on the money used
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Potentially tax-deductible
Helpful HELOC Factors to Consider
There are many factors to consider when determining if you qualify for a home equity line of credit and the amount you would qualify for. A few factors that help determine if you qualify include:
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Credit Score
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Debt-to-Income Ratio
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Income History
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Amount of Equity In Your Home
Typically, with a home equity line of credit, you can borrow up to 85% of your home’s equity. You can calculate your home’s equity by taking the estimated value of your home minus your mortgage balance.
Opportunities to Tap Into a HELOC
Home Improvements
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One of the most common uses for a home equity line of credit is for home improvements. Whether you’re getting ready to sell your home or just looking upscale with a few renovations, a HELOC provides you the financial backing with a lower interest rate compared to other home loan options.
Emergencies
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Life comes with unexpected moments; a home equity line of credit can be there for you in times when you need it most or in the event of an emergency. With the flexibility a HELOC provides, you can take out the amount you need when you need it. A HELOC can offer peace of mind during situations you may not have accounted for to keep you on your feet.
Various Life Events
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It’s normal to have expenses arise aligning with the stage of life you or a child may be in. For example, things like college tuition, weddings, vacations, or even retirement planning, can all come with large expenses. A home equity line of credit can provide you with the funds at a reasonable interest rate and a flexible payback period.
A home equity line of credit is a very beneficial financial tool to apply in your personal life as expenses arise. If you’ve been thinking about applying for a HELOC, now is the time! Learn more about our home equity loans at American First Credit Union or contact us with any questions you have.
