The Do’s and Don’ts of Home Equity Loans

Home equity burning a hole in your pocket? You may want to think twice about that boat.

Home equity is a valued resource, and if you have it, you might be tempted to tap that wealth for other purposes. A home equity loan, which allows you to use your home’s equity as collateral, is a great way to do this. But depending on your personal situation, it may not be the right thing to do.

Here’s when a home equity loan makes sense — and when it doesn’t.

DON’T: Fund a lifestyle

Remember when homeowners yanked cash out of their homes to fund affluent lifestyles they couldn’t really afford? These reckless borrowers, with their boats, fancy cars, lavish vacations and other luxury items, paid the price when the housing bubble burst. Property values plunged, and they lost their homes.

Lesson learned: Don’t squander your equity! Look at a home equity loan as an investment — not as extra cash when making spending decisions.

DO: Make home improvements

The safest use of home equity funds is for home improvements that will add to the home’s value. If you have a one-time project (e.g., a new roof), then a home equity loan might make sense.

If you need money over time to fund ongoing home improvement projects, then a home equity line of credit (HELOC) would make more sense. HELOCs let you pay as you go and usually have a variable rate that’s tied to the prime rate, plus or minus some percentage.

DON’T: Pay for basic expenses or bills

This is a no-brainer, but it’s always worth reiterating: Basic expenses like groceries, clothing, utilities and phone bills should be a part of your household budget.

If your budget doesn’t cover these and you’re thinking of borrowing money to afford them, it’s time to rework your budget and cut some of the excess.

DO: Consolidate debt

Consolidating multiple balances, including your high-interest credit card debts, will make perfect sense when you run the numbers. Who doesn’t want to save potentially thousands of dollars in interest?

Debt consolidation will simplify your life, too, but beware: It only works if you have discipline. If you don’t, you’ll likely run all your balances back up again and end up in even worse shape.

DON’T: Finance college

If you have college-age children, this may seem like a great use of home equity. However, the potential consequences down the road could be significant. And risky.

Remember, tapping into your home equity may mean it takes longer to pay off the loan. It also may delay your retirement or put you even deeper in debt. And as you get older, it will likely be more difficult to earn the money to pay back the loan, so don’t jeopardize your financial security.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published February 23, 2016.

Source: zillow.com

The Dos and Don’ts of Borrowing Money – SmartAsset

The Dos and Don’ts of Borrowing Money – SmartAsset

Tap on the profile icon to edit
your financial details.

Taking on debt is a thorny subject. Signing on an affordable mortgage is one thing. Racking up credit card debt on unnecessary purchases? Quite another. Any time you borrow money, you put your finances at risk. That’s why it’s important to do your research before committing to new debt. If you’re not sure whether to borrow money, read our list of dos and don’ts. And if you need hands-on help managing your financial life, consider linking up with a financial advisor.

Do: Comparison shop when deciding where to borrow

Thinking of borrowing money? Don’t just go for the first credit source you can find. Look around for a loan that meets your requirements and leaves you with monthly payments you can actually afford. If you’re not happy with what lenders are offering you, it may be best to take the time to build up your credit score and then try again.

Don’t: Just look at the interest rate

Comparing loans is about more than searching for the lowest interest rate you can get. Look out for red flags like prepayment penalties. Stay away from personal loans that come with pricey insurance add-ons like credit life insurance. These insurance policies, particularly if you decide to finance them by rolling them into your loan, will raise the effective interest rate on the money you borrow. Approach payday loans and installment loans with extreme caution.

Do: Go for “good debt”

Good debt is debt you can afford that you use on something that will appreciate. That could be a home in a desirable neighborhood or an education from a reputable institution that will help your future earning power. Of course, you can’t be 100% sure that your home will appreciate or your advanced degree will pay off but you can take leaps based on thorough research.

Don’t: Go overboard with consumer debt

Consumer debt is generally considered bad debt. Why? Because it’s debt taken out for something that won’t appreciate. You’ll spend the money and get fleeting enjoyment but you’ll be making interest payments for months or years. In other words, it’s generally better to save up for that new tablet or vacation than to finance it with consumer debt.

Do: Keep a budget

Real talk: Anyone who has debt should be on a budget. Budgets are great for everyone, but those who owe money to lenders are prime candidates for a workable budget. Start by keeping track of your income and your spending for one month. At the end of that month, sit down and go over what you’ve recorded. Where can you cut back? You can’t be sure you’ll be able to make on-time payments unless you’re keeping track of your spending – and keeping it in check.

Don’t: Be late

Speaking of making on-time payments: Making a late payment on a bill you can afford to pay is not just careless. It’s also  costly mistake. Late payments lower your credit score and increase the interest you owe. They can also lead your lender to impose late-payment penalties and increase your interest rate, making your borrowing more expensive for as long as it takes you to pay off your debt.

Do: Seek help

If you’re having trouble keeping up with your debt payments or you’re not sure how to tackle a handful of different debts, seek help from a non-profit credit counseling organization. A credit counselor will sit down with you and review your credit score and credit report. He or she will help you correct any errors on your credit report. Then, you’ll work together to set up a debt repayment plan. That may mean you make payments to your credit counselor, which then pays your lenders on your behalf.

Don’t: Throw good money after bad 

Why a non-profit credit counselor? Well, there are plenty of people and companies out there that want you to throw good money after bad. They may offer counseling or they may try to sell you on bad credit loans. At best, they’ll charge you an arm and a leg for advice about debt repayment that you could be getting for free. At worst, they could lead you further into debt.

Do: Automate

If you have debts to pay off then automation can be your friend. Setting up automatic transfers for your bills and your loan payments will remove the temptation to overspend, to make only the minimum payment or to skip a payment altogether. If you can afford it, set up automatic savings while you’re at it. The sooner you start saving for retirement the better. Just because you’re still paying off your student loans doesn’t mean you should defer your retirement savings until middle age.

Bottom Line

Most of us will borrow money at some point in our adulthood. These days, it’s easier than ever to borrow money online and take on debt quickly. The choices we make about when, how and how much to borrow? Those can make or break our finances. Before you take on debt, it’s important to ask yourself whether that debt is necessary and how you will pay it back. Happy borrowing!

If you want more help with this decision and others relating to your financial health, you might want to consider hiring a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with top financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/placidusanimus, ©iStock.com/Justin Horrocks, ©iStock.com/Squaredpixels

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia’s work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
Read next article

Categories

Source: smartasset.com

The Dos and Don’ts of Staging Your Home During the Holidays

While the peak time to list a home is during the spring season, the current seller’s market has extended that window, seemingly to be all year long in 2020. Many homeowners are preparing their homes to sell – even during the upcoming holiday season. It’s important to note that despite the intense seller’s market, November through January are the slowest months to sell a home, according to the National Association of Realtors. While preparing a home to sell at any point during the year can provide challenges, there are additional things to consider when listing a home during the holiday season. And one of the most common questions Realtors receive from homeowners that are preparing to list their home during the holiday season is: “Should we decorate or not?” These tried-and-true tips from real estate agents across the U.S. will help homeowners as they prepare to list their homes in the coming weeks.

Do Make Your Home Feel Cozy

During winter, and especially during the COVID-19 season, people stay home more. And as they tour homes, they want it to feel cozy and welcoming during those cold, dreary winter months. Add things to warm up your home like candles (unlit), blankets, or classic fall and winter patterns. Foliage like pinecones, garland, and plants that are evergreen even in cold months is a great way to add the “homey” feel in a house that’s for sale.

staging holidays staging holidays

If you have a fireplace in your home, pay it up! A basket of firewood next to it, a few baskets filled with blankets nearby, and even some decor on the mantle if you have is a great way to draw attention to the warmth of your home in the cold months.

Read: Fall and Winter Decor Trends We Love in 2020

Don’t Decorate For List Photos

While the average days on the market continues to shrink thanks to the seller’s market, a home typically sits on the market for 3 weeks—and longer in some areas. It’s important that listing photos provide a timeless look of the home—not a brief snapshot of one holiday. Madeline Smallwood with Collier & Associates in Bentonville, Arkansas suggests, “If you are listing at the end of a holiday– say Halloween– don’t have photos taken with your home decked out in Halloween decor and then listed when Halloween has passed.” If your home sits on the market beyond the typical three weeks and long after the holidays and the listing photos contain holiday decor, it’s one more reminder to buyers that your home hasn’t sold and could be a stale listing.

Tips for listing photos from Smallwood: “Keep decor centered around the season and not the holiday. This looks more tasteful in photos and for showings.”

staging holidaysstaging holidays

Do Depersonalize Your Home and Decor

A rule Realtors convey not only during the holiday season, but year-round is to depersonalize a home before listing. Buyers want to walk into a house and feel like it could be their home and not feel like they’re intruding on someone else’s home. Decor, paint, and personalization should be minimal and appeal to the masses. Smallwood suggests “putting away all the personal holiday cards, stockings with your names on them, etc.” It’s important to remember that homeowners are planning to move anyway, so packing up non-essential and personalized items before listing can not only help with decluttering but provides a head start on the packing process!

Don’t Overwhelm Buyers

While homeowners may love to have candles lit, a fire burning in the fireplace, or a real fir tree, some of those scents can overwhelm buyers — especially if they have allergies. Although we recommend drawing attention to those elements of your home that may set it apart, like a fireplace, it’s important to not have it lit – the smell of smoke can definitely be an overwhelming factor. If homeowners do want to create a cozy atmosphere with candles, try incorporating battery or solar odorless and smokeless candles, or have candles around but not have them lit.

staging holidays staging holidays

Do Decorate Seasonally Not Specifically

Specific holiday decor doesn’t really enhance a home’s desirability, but styling for the winter season can dramatically improve a home’s appearance. Making small changes in textiles, decor, and even paint can dramatically improve a home’s desirability. Smallwood concurs by stating “Skip the overly trendy decor that’s hip this year and stick to classic decorations and seasonal themes.” For example, she reminds her clients to, “skip the spooky Halloween specific decor and do a fall theme instead.”

Read: Why You Should be Doing Seasonal Home Staging

Don’t Go Overboard With Decor

Madeline Smallwood says less is more. While homeowners may typically love to go overboard with decor, it’s best to scale it back if your home is on the market during the holidays. Paliwoda says that “Over decorating is the biggest mistake” homeowners make while trying to sell their home in the holiday season. Madeline Smallwood offers sellers the practical tip to “keep it simple. Decluttering is always one of the best things you can do before listing your home. This goes for holiday decorations.”

Read: Staging Your Home Beautifully on a Budget


See more posts by this author

Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She’s passionate about the power of real estate. She’s also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

Source: homes.com