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The spring season is typically a time of renewal, and, fittingly, homeowners across the country are realizing that tapping into their home equity — which the average homeowner has about $313,000 worth of right now — gives them the chance to take advantage of new financial opportunities.
There are a few ways homeowners typically tap into their home’s equity, including home equity lines of credit (HELOCs), home equity loans and cash-out refinances. If one of those funding sources is already in the works for you, though, and you’re in the process of determining how you’ll spend the money, there are a few smart ways experts say you can use those funds this spring.
Find out what your home equity borrowing options are here.
3 smart ways to use your home equity this spring, according to experts
Here’s what experts say you may want to consider using your home equity for this spring:
Buy an investment property
The average homeowner currently has enough equity in their homes to make a substantial down payment on an investment property — or buy one outright. That’s a move that Sasha Travassos, a mortgage broker with Zyng Mortgage, sees a lot of homeowners making right now.
“[Homeowners] will pull equity out of their home and buy a cheaper property in a less expensive area or region and either use it as a second home,” Travassos says.
According to Travassos, many of her clients are buying a second home with the help of their home equity. When they’re staying at one house, they’ll rent out the other house on a short-term basis. Because the rental contracts are short-term — between six and 12 weeks, for example — the homeowners can easily plan ahead and rotate between homes to earn rental income.
“You just want to make sure that not only is the mortgage, property tax, insurance and HOA fees are covered by that rental income, but you also want to have a little bit left over for maintenance and, potentially, profit,” Travassos says. “The idea is that you’re using that equity to create income, and, obviously, getting new equity in the home you’re purchasing for long-term asset growth.”
See what your home equity borrowing rates could be here.
Upgrade your roof and windows
Natural disasters such as fires, flooding, hurricanes and tornados are driving up home insurance rates in many states. With summer fast approaching — and the severe storms that come with it — this spring is a good time to update your roof and windows.
While these updates are not as popular as, say, a kitchen remodel or room renovation, replacing your roof and windows could have a significant impact on your home insurance premium, says Tara McCafferty, a producing branch manager at American Pacific Mortgage, a mortgage banker and broker.
Doing a wind mitigation inspection on your home — which is an inspection that looks at your roof, windows and the other parts of your home that could be damaged by storm winds — can drop your premiums substantially if the results of the inspection are positive, McCafferty says.
“Without that report or the insurance company knowing those things are solid, we’ve seen premiums come back at, for example, $4,500 a year,” McCafferty says. “But if they have the report and the report is good, the premium could be $2,000 or $1,900 a year.”
A new roof is also a great selling point if you’re looking to sell your home and buy elsewhere this spring, McCafferty says, as many first-time homebuyers are looking for a home with a new roof or windows.
“They don’t have the extra capital to put on a new roof at closing or within a year,” McCafferty says. “A lot of times they look for [a new roof and new windows] when purchasing a home. With these things, your home becomes more enticing for a buyer.”
Acquire a business
If you’ve got expertise in a certain trade or industry, using your home equity to purchase a business in that field could be a smart decision right now, says Travassos, who works with residential homeowners and businesses.
A “silver tsunami” of baby boomers selling their businesses is churning along right now, according to Travassos — and the influx of business acquisition opportunities could offer an income-producing way to leverage your home equity.
“Yes, you can put money into renovations, but sometimes you don’t get the bang for your buck, whereas you could use the equity from your home for a business acquisition, buying a plumbing business or electrical installation business; something in your area of knowledge,” Travassos says.
The bottom line
The beauty of home equity is that you can use HELOCs, home equity loans and cash-out refinances to borrow for nearly any number of reasons. While improving a kitchen or bathroom can be well worth the money and time, experts say using equity to fund projects that can lower your bills or increase your income is the smart choice this spring. As you decide how you’ll use the equity you’ve built up in your home, though remember that your home is used as collateral with this type of borrowing, so it’s important to ensure that the payments will fit your budget to avoid putting your home at risk.
