CANFIELD, Ohio (WKBN) – The housing market has seen better times as home prices and interest rates are high. It’s not just affecting buyers, but homeowners as well. We talked to a realtor about why more homeowners are taking advantage of their equity.
Home equity is the portion of your home that you own outright. A home equity loan gives owners money that gets repaid monthly, typically over a 10- to 20-year term.
There are also home equity lines of credit, or HELOCs, which allow homeowners to borrow money as needed while only paying interest for some time before eventually paying it back.
Realtor Wendy Perez is seeing more homeowners using equity borrowing.
“I have personally listed quite a few properties that the clients have second mortgages,” she said.
She’s not alone. According to real estate data curator ATTOM, lenders made over 284,000 HELOCs in the second quarter of 2023.
Perez says there are several reasons why homeowners are getting these loans.
“It’s great because then they were able to do home improvements. Some families are using it to, for example, consolidate their loans. The other advantage too is a tax benefit,” she said.
However, there are some risks in getting a home equity loan.
“When somebody falls behind in their payment, the bank can foreclose when the housing market dips, then the family might owe more than the value of the house,” Perez said.
If you’re thinking about home equity borrowing, Perez says banks will check four things before giving you a loan.
“You have to have home equity. Of course, the credit score will always be a factor, the debt to income ratio and then, last but not least, is your payment history,” she said.
Perez says home equity borrowing is good for home improvements — that’s if you’re looking to stay in your house for a long time. She says to stay away from it if you’re planning to move soon.