Home equity is one of the most important financial conditions that must be mastered when approaching a real estate purchase or a home equity line of credit. Simply put, the value of the home that you own outright can be leveraged for additional purchasing needs, but the process of unlocking this potential with the help of a lender isn’t always straightforward.
Likewise, the things that homeowners can choose to mobilize this capital for are often limited in scope and pertain strictly to the home itself. Of course, this isn’t always the case, and a home equity loan can be utilized for a variety of different and essential purposes.
What is home equity?
It’s a good idea to familiarize yourself with the value of your home and all the things that a line of credit can do for you. As with any lending, there is a new interest rate and monthly payments to consider, so keeping your borrowing in check will always be a necessity. Yet home equity remains perhaps the most important source of borrowing power that a homeowner possesses when it comes to home improvement projects, unexpected hospital bills, and many other large expenses that life might through your way.
In order to calculate your home equity, you will need to take stock of the monthly payments you’ve made toward the principal of the loan added to the down payment you mobilized when initially purchasing the property. This will give you a total dollar amount that can be used to calculate the percentage of the home that you own, and the percentage owned by the lender who provided the remaining funds for the purchase.
However, this isn’t the only aspect of home equity that matters. Because the property is a fluctuating asset that often rises in value over the years, no matter how much equity you have in the home, the home’s value is likely higher than it was at the time of appraisal and purchase. This means that your cash value in the property is higher, too. This is most important for those thinking about selling their home, however, keeping an eye on your asset’s total value is always a good idea for homeowners.
HELOCs and Home Equity Loans
The two main sources of funding through home equity are HELOCs (home equity line of credit) and a traditional home equity loan. They operate in distinct ways, but both help you to access quick cash to cover emergencies or home improvement projects. A HELOC is a particularly interesting financial product because it operates in much the same way as a credit card, yet the borrowing power is tied directly to the equity of your home. This means that borrowers must be wary of overextending themselves, but can rely on a low-interest line of credit to get through any hard times.
For funding a renovation, these products stand above the competition. With low-interest rates and a long repayment period, hiring a contractor with the funds made available by a home equity loan or HELOC is a great way to continue improving upon the value of your home at a low overall cost.
Window and roof replacement are two areas where homeowners really find these funds helpful. Hiring a professional contractor to shore up these weak points in your home’s external systems can give you decades worth of comfort and peace of mind, or help you to immediately boost the resale value for a quick sale at a profit. Searching for “Grand Rapids window replacement” is all you’ll need to get started. Online reviews and helpful tips from real customer testimonials can help you find the right professionals for the problem you’re trying to solve.
No matter what you need the funding for, home equity is often a great choice for homeowners looking to take advantage of the value they’ve built up in their home over the years. These products offer a low-cost option for renovations or big lifestyle changes and can act as a unique funding lifeline.