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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Home Equity Uses In Texas
Home equity is your share of money in your home. Equity is a return on the investment in your home, and tapping it is not a light decision to make.
There are good reasons to use your home equity, but there are some reasonably bad ones too. Lets us discuss some best and worst home equity uses in Texas.
Best Home Equity Uses
An increase in home value in recent years has given many homeowners an option to access quick cash through their home equity.
Even if you decide to do that, you might want to consider the reason why you want to tap into that home equity.
Eventually, you are going to borrow against the roof over your head. Below are a few reasons which could be considered as some of the best home equity uses in Texas.
1) Home Remodeling Projects
Home improvement is one of the most common reasons why homeowners might want to tap into their home equity. It not only gives the leverage of staying in a more comfortable home but also increases the value of a house.
It will also help you gain more returns if you decide to sell the house at a later stage. However, there is a limit to the upgrades that you can do at a given time.
Getting a paint job or upgrading a kitchen or bathroom may not give you a substantial growth in the value of the house compared to adding a room or a bathroom.
Also, you might want to consider the money that you put in for the remodeling, and it should be worth doing it.
2) Higher Education
Using a home equity loan could be one of the best ways to pay for higher education. Most of the time, a home equity loan or a HELOC will have a low-interest rate compared to a student loan because they are secured by collateral.
Usually, when you are paying for higher education, you are working towards increasing your monthly income.
Hence, it could be considered as one of the best use of home equity. However, you might want to check all the options for a student loan before tapping from your home equity.
Because defaulting on a student loan will affect your credit score but defaulting on a home equity loan might end up in a foreclosure of the property.
3) Pay Of High-Interest Debts
Paying off your high-interest debts like credit cards, car loans, or any other personal loans using your home equity can be beneficial. You can consolidate your debts to a much lower interest rate using a home equity loan or a HELOC.
The consolidation of high-interest debts could be one of the best use of home equity.
However, you might have to come up with a good payment management plan so that you don’t end up maxing out your credit cards after the consolidation, as it will affect your credit scores too.
You might also check if debt consolidation is worth doing as tapping from your home equity in the form of a home equity loan or HELOC has costs attached to it.
4) Home Equity For Emergency
It is always advisable to have an emergency fund back up for up to three to six months of your living expenses. However, it is not still possible to have such kind of back up every time.
You can put home equity to good use to come out of an unavoidable costly situation, maybe because of substantial medical bills or if you are out of work.
It is good to have home equity as a backup tool in such emergencies. However, you still might want to consider setting up an emergency fund and keep home equity as a last resort.
5) Home Equity for Investment
When we talk about using home equity for investment, every individual may have different thoughts about it.
Some may invest in the stock market, whereas others may consider investing in real estate. Investing to gain higher returns could be one of the best use of home equity.
Usually, when investors think about investing in such endeavors, they do study before investing.
None the less there is a risk involved. If you are thinking of investing in such profiles, you might want to take advice from a trusted financial advisor to get more benefits.
Worst Home Equity Uses
Since we have learned about some better reasons to tap into your home equity, let us now look at some worst ones. To get access to your home equity, you need to qualify for the same.
Even if you do qualify, it depends a lot on the reason you are going to use the money. Below are the reasons which could be considered as a few of the worst home equity uses in Texas.
1) Purchasing Expensive Assets
Using your home equity for purchasing significant expensive assets like a big boat, a luxury car or jewelry would usually make less financial sense as it doesn’t give an appreciation of the asset for the money that you have invested.
It will ultimately make sense if you buy these things without borrowing money.
2) Paying for Vacation
Everybody needs a vacation. However, using your home equity to pay for your vacation or leisure may indicate that you may be spending beyond your means. Using equity may be cheaper than using your credit card in such a case.
However, it’s still a debt. Moreover, defaulting on a credit card may only risk your credit, but with home equity, your home is at risk of being foreclosed.
Conclusion
Making sure you use your home equity in the right way can not only bring you wealth but also back up your finances like never before.
All you need to do is analyze whether your reason to tap into your equity is worth it, and the money is probably being put to its best use. The best use of home equity ultimately depends on the reason you decide to use it.
