In a high price market like the one real estate has seen for the past few years, many homeowners have seen a jump in their home equity. So, while home sales have been mostly down, home equity loans have not seen the same decrease.
Homeowners looking to borrow against their home equity have never had a better time than as of late, but the reasons they borrow for can vary. When homeowners borrow against their equity they are most commonly spending the loan on making home improvements, consolidating debt, getting money for investment purposes, getting extra retirement income or another unspecified reason.
LendingTree’s new report analyzes borrowers’ home equity loan requests on their marketplace in the first quarter of 2024 to determine what among the stated reasons was the most to least popular.
Key highlights:
- Across the 50 states, 40.58% of those seeking a home equity loan cited paying for home improvements as their primary reason.
- Mississippi, Maine and West Virginia had the largest portion of homeowners seeking to use an equity loan to fund home improvement projects.
- 33.78% of homeowners considered tapping their home’s equity to help consolidate debt, the second most commonly cited reason among LendingTree users. For homeowners in Wyoming, Idaho and South Dakota, this was the most commonly cited reason.
- Using a home’s equity for investment purposes was the main goal for 7.68% of homeowners. Utah, Alaska and Hawaii had the largest share of homeowners pursuing this option.
- Only 2.56% of homeowners considered using their home’s equity as retirement income. This option was most popular with homeowners in Nevada, Vermont and Florida.
- A significant percentage of homeowners—15.39%—considered a home equity loan for a reason other than the ones listed above (such as to pay for college, a wedding or emergency-related expenses). Homeowners in Hawaii, New Mexico and Alaska most commonly borrowed against their equity for this reason.
Major takeaway:
“A home equity loan can be a good way for a responsible homeowner to access cash that might otherwise be hard to come by. As our study shows, these loans can be used for various purposes. Depending on factors like the equity you’ve built into your home and your credit score, you may be able to borrow tens, if not hundreds, of thousands of dollars at a considerably lower rate than what you’d get with a personal loan or a credit card,” said Jacob Channel, LendingTree’s senior economist and author of the report.
“That said, home equity loans aren’t without risks. Chief among them is that failure to pay back a home equity loan can result in foreclosure. Even if it doesn’t, it can still ruin your credit and otherwise make it much harder for you to get approved for another loan—regardless of the type,” continued Channel. “Homeowners shouldn’t seek a home equity loan unless they’ve thought through potential pros and cons. Just like a first mortgage, a home equity loan isn’t something that should be taken lightly. Failure to pay it back can have serious negative repercussions.”
Channel concluded, “Even if you could get approved, getting a home equity loan may not be best for you. It’s sometimes better to avoid borrowing money, even if it means you’ll have to spend more time saving up for a big purchase.”
For the full report, click here.
