Are you wondering if a home equity loan is a good idea for you?
A home equity loan means that you are borrowing against the value of your house. Typically, home equity lenders require you to have owned the home for at least six months of consistent, on-time, and full mortgage payments before you are eligible for a home equity loan. (That’s what we do, too!)
Once you are eligible for this kind of loan, it may be an excellent way to utilize the equity in your home.
What can you use a home equity loan to pay for?
Home equity loans are often used to pay for a major expense, especially one-time home improvement projects. We have seen our customers use home equity loans to do plenty of things to improve their homes, including:
- Pay for a new roof
- Renovate the house
- Update a kitchen
- Design and build a new landscape
- Put in a pool or patio
However, home equity loans aren’t tied exclusively to home improvement projects. They can be used to finance a dream vacation, education or consumer debt consolidation, and plenty of other major purchases. Some people also use them to fund emergency expenses, including medical bills.
Home equity loans are growing in popularity, in part because of how flexible they are in how they can be used. However, we do recommend caution when deciding how to spend the money that you cash out of your house. You are borrowing against what most people agree is their most valuable asset: your home.
Are home equity loans tax deductible?
You may have heard that home equity loans are tax deductible. That is true, but there are some limitations. The tax situation for home loans has also changed recently, so if you last purchased a home before 2018, you need to be aware of those changes.
Any loans taken out between 2018 and 2025 will be impacted by The Tax Cut and Jobs Act of 2017.
An important thing to be aware of is the fact that this kind of loan may only tax deductible if you spend the money on home-related costs. Vacations, debt consolidation, real estate purchases, and other major spending will not be tax-deductible. Keep this in mind if you are planning on using the funds for one of those other ideas!
What do you need to do before you apply for a home equity loan?
There are several things you can do before you come to see us for your home equity loan. These three things will help you prepare to apply.
- Check your existing debt and pay down what you can. If your debt requires you to pay more than 43% of your income in monthly payments, you will probably want to reduce that percentage before you apply.
- Find out the equity of your home. How much does your home appraise for, and how much equity have you put into the home already with your mortgage payments?
- Know your credit score. Just like with any other kind of loan, a better credit score will get you a better interest rate.
Ready to learn more?
If you’re ready to learn more, let’s talk! Come talk to us if you are interested in discussing your options for a home equity loan that will give you the freedom to improve your home, consolidate your debt, or make a major purchase!
*See a WEOKIE rep for details. Federally Insured by NCUA
* Minimum loan amount on a home equity or home equity line of credit is $20,000 to receive the cash reward. Please contact a WEOKIE Mortgage Representative for more details.
*See a WEOKIE rep for details. Federally Insured by NCUA.