10 May 6 Best Reasons For Veterans To Use Home Equity
Looking for a way to get your hands on quick cash? Getting a personal loan is not your only option. Tapping into your home’s equity is a quick way to access some money and cover financial expenses.
However, before we get into this, keep in mind some factors before taking a loan against your home. If you fail to make timely payments, you might lose the title of the house.
Moving forth, in order to tap into your home’s equity, you can apply for loans like a VA cash-out refinance loan or a Home Equity Line Of Credit (HELOC). The amount you receive can be used for your financial needs, whether it is for paying your college fees or consolidating debt.
What is Home Equity?
Home equity can be defined as the portion you have already paid off from your ongoing VA mortgage. Simply put, it’s the difference between the current market value of your home and the debt you still own to the lender.
Home equity is pretty vital and can help you grow your personal wealth over time. As the market value of your home increases and you keep paying off the mortgage, your home equity will keep increasing.
Moreover, equity can be a great way to initiate savings. In fact, you can use your current home’s equity to make a downpayment for a larger home. Furthermore, it’s a better option than personal loans, which are often associated with high interest rates.
How Home Equity Works?
In order to tap your equity, you would have to go through a similar process of applying for a mortgage. The most common way to apply for equity is either through VA cash-out or HELOCs.
You can get in touch with a VA-approved private lender to apply for a VA cash-out refinance. For HELOCs, you don’t need a VA-approved lender. The lender will then assess your credit history, debt-to-income ratio, loan-to-value ratio, income and credit score to ensure if you are financially capable of paying back the loan.
In addition to this, the lenders will also hire an appraiser to evaluate the current market value of your home.
Why Consider Using Home Equity?
Contrary to the conventional personal loans and credit cards where you have to pay a hefty amount as interests, HELOCs and cash-out allow you to use your own money against your house. This comes with significantly lower interest rates and flexible guidelines.
It offers fixed monthly instalments and provides a large sum of accessible cash up front.
6 Best Reasons To Use Home Equity
You can use the cash you get by tapping into your home’s equity in a number of ways. Frankly speaking, there are no restrictions.
Regardless, here are the best ways/reasons to use your home equity.
- Home Improvement Plans
The most common reason most people opt for HELOCs is home renovations. In addition to making your house look aesthetically pleasing and making your lives more comfortable, getting home renovations can increase the value of your house, thus generating the potential of high sale revenue in the future.
In short, home renovations can increase the market value and allow your homes to be sold off at a higher rate. This, in short, is a huge investment, especially if you are planning to sell the house in the near future.
- College Tuition
While student loans are a little more common than HELOCs, using your home’s equity to pay off your tuition fees can be a great option. Moreover, it can increase the loan term of your mortgage and lead to lower monthly installments.
However, it is wise to ensure that you can pay off the loan before your retirement, as missed payments can lead to you losing your house. If you don’t think you could consolidate your debt before retirement, consider taking a student loan.
- Emergency Expenses
If you are in a situation with expensive medical bills or without a well-paying job, you can access your home equity and cover up the financial expenses.
While this is a great option, it only works if your situation is temporary. In short, you’ll be able to pay back the loan in time within a few months. If you fail to do so, you might lose the title of your home.
So, if you know your situation would persist for a longer period of time, it’s best not to tap into the equity. Instead, you can apply for personal loans. Moreover, though it’s tempting to know that you can tap into your equity at any time to cover the financial expenses, it is wise to have enough savings to get you through the difficult phases of life.
- Pay For A Wedding
The estimated figure for organizing a wedding in 2022 is around $19,000. And, this doesn’t even include the cost of a honeymoon. While you can go for wedding loans or personal loans to make this big day memorable, tapping into the equity can be better as you would not be required to pay huge interest rates.
However, it’s best only to take an amount that is needed.
- Start A Business
You could use your home equity to invest in a business or start your own enterprise. However, it must have a stable plan and a customer base ready because you’ll be required to make the monthly downpayment, regardless of whether you are able to earn or not.
- Consolidating Debt
You can get rid of the high-paying interest debt with a low-interest HELOC. This could be either a car loan or credit card. But, make sure you have a stable income to back your monthly installments because, simply put, you can not afford to default on this loan.
VA Loans and Equity Home
Remember when we said you need to consider a few options before applying for a HELOC or cash-out? Here are those factors.
The Declining Value Of Your Home
Frankly speaking, there is absolutely no guarantee of your home’s actual value. It could increase and decrease at any time. If the value rises, well, good for you. You’re all set.
But, in case it declines due to a natural disaster, economic conditions or any other reason, you would end up paying more than between the mortgage and the current value of the home.
So, make sure you are ready for the potential decrease in the home value. Moreover, it is wise to study the market conditions before applying for the loan.
There’s A Limit To How Much You Can Borrow
The total limit you can borrow with a HELOC or cash-out would be determined by subtracting the remaining mortgage balance from the total debt you own. And, if your calculated home equity is around $300k, there is no guarantee you’ll receive the entire amount.
Instead, the lender will only approve of giving you 80%-85% of the total equity.
Is Using Home Equity Right for You?
Honestly, it’s something you should ask yourself. Are you ready for the financial loan and to make heavy payments every month? Will your pocket allow you to make the payment even if you don’t have a fixed income source in the future? Consider these questions. After all, your home will be at stake, and if you fail to pay back the loan, you could lose your home.