You may have more cash in your home than you think. While you might have some under your mattress or locked up in the attic, most of it will come from your home’s equity. With home equity, you can build wealth and meet (or even exceed) your financial goals. Let’s take a closer look at what home equity is and how you can use it to your advantage.
What is Home Equity?
Home equity is the difference between what you owe on your mortgage and what your home is currently worth. Put simply, it’s the portion of your home that you truly “own.” To calculate your home equity, subtract your mortgage balance from the appraised market value of your home.
Let’s say your home is valued at $450,000 and you owe $200,000 on it. In this scenario, your home equity is $250,000.
TIP: To figure out how much your home is worth, you can reach out to a local real estate agent, hire a professional appraisal, or use free online valuation tools on websites like Zillow, Redfin, and Realtor.com.
How to Build Equity in Your Home
There are a number of ways you can build equity in your home, including:
- Make a Larger Down Payment: The larger down payment you make when you buy your home, the more equity you’ll gain right off the bat. Of course, you’ll have to weigh that against how much you can comfortably afford to put toward a down payment.
- Choose Home Improvements with High ROIs: Not all home improvement projects are created equal. Since some will increase your home’s value more than others, you should be strategic about which ones you invest in.
- Pay More on Your Mortgage: If you make extra payments toward your mortgage principal every month, you’ll reduce your overall debt and build equity faster. You can make biweekly payments or put occasional extra money from a tax refund or bonus toward your balance.
- Wait for Your Home’s Value to Increase: Your home’s value will fluctuate over time. When home prices in your neighborhood increase and demand grows, the value of your home will naturally rise, without much effort on your part.
Common Uses for HELOCs
HELOCs are versatile and can be used for virtually any purpose. Oftentimes, homeowners take out a HELOC to pay for:
- Home Improvements: Whether you want to remodel your kitchen, finish your basement, or add a deck, a HELOC can help. It may provide you with the funds to tackle just about any home improvement project on your list.
- Debt Consolidation: If you have high-interest credit card debt, consolidating it with a HELOC is a good idea. You can save a lot on interest and potentially pay it off sooner.
- Investment Properties: With a HELOC, you may pursue your dream of buying an investment property or second home. It’s a great way to build wealth through real estate.
- Emergency Expenses: You can use a HELOC to cover a car repair, medical bill, or any other emergency expense that may pop. It can be a real lifesaver when you’re in a financial pinch.
What Can You Do With Your Home Equity
You don’t have to sell your home to take advantage of its equity. Instead, you can borrow against it with a home equity line of credit or HELOC. A HELOC lets you withdraw as much or as little money as you’d like up to a set credit limit, just like you would with a credit card. You’ll only pay interest on the amount you borrow.
NOTE: A HELOC is different from a home equity loan. While both are secured by the equity of your home, a home equity loan offers a lump sum of money upfront. You’ll repay it over time via fixed monthly payments.
Pros of HELOCs
The greatest advantages of HELOCs include:
- Flexibility: Once you’re approved for a HELOC, you can pull funds at any time and use them on anything: home improvement projects, debt consolidation, investment properties, emergencies…the list goes on.
- Interest Savings: You may lock in a lower interest rate than you’d be able to with credit cards and other loans. A HELOC can potentially save you hundreds or even thousands of dollars in interest.
Cons of HELOCs
These are the most noteworthy drawbacks of HELOCs.
- Fees: If you do move forward with a HELOC, you’ll be on the hook for hefty origination fees. Some lenders even charge annual fees, prepayment penalties, and inactivities.
- Long Closing: You’ll have to wait anywhere from 4 to 6 weeks to close on your loan. This can be a real issue if you need the funds ASAP.
The Chloe Credit Card
With the Chloe Card, you can enjoy a HELOC, without all the drawbacks. The Chloe Card is essentially a HELOC issued via credit card that you can use anywhere that accepts credit card payments.
Thanks to modern proprietary technologies, you may get approved in minutes, for up to $250,000. You’ll receive the card in the mail so you can make transactions with ease and earn unlimited cash back while you’re at it.
There are no origination fees or annual fees with us. Depending on your credit, you may also land a low variable interest rate ranging from 3.5% to 10%. You’ll also have access to our unique home intelligence app. There’s really no better way to start building wealth through homeownership!
The Home Intelligence Freemium App
With the home intelligence freemium app, you’ll enjoy highly personalized, data-driven recommendations that offer actionable steps you could take to build wealth and reduce expensive debt using the Chloe Credit Card. It will launch several months before the card and offer the following:
- Real-time data to track your home value and equity
- Ideas on how to best tap into your home equity
- Renovation data to help you understand which projects will bring the highest ROI
How It Works
It couldn’t be easier to prequalify for the Chloe Card. Here’s what you can expect:
- Check Your Offer: Answer a few questions to confirm your home and identity.
- Confirm Income: Verify your bank account, pay stubs, or bank statements instantly.
- Sign Up: Connect with our notary to sign your documents digitally.
- Receive the Card: Upon approval, wait for the Chloe Card to arrive via mail.
- Spend Wisely: Use the Chloe Card to build wealth with your home equity.