Use Your Home Equity to Decorate it Without Falling into Debt Trap

When you want to furnish your new home you will need quite a fair amount of money. Assuming that you have already spend quite a lot and have bought the house on loan, finding resources can really be a problem. It is easy to take on a further loan for home improvement but then it may make things a little hard for you especially when it comes to managing your debts efficiently.

In such situations you can make the most out of your home equity provided you have repaid a part of your mortgage. This will not only help you to decorate your home but will also help you in managing your debt without taking on more of it.

However, taking out a home equity loan is not easy and you will need to consider different factors before you apply for it. Here is a brief list of things that you should consider to make your loan worthy and useful.

Usefulness of it

If your home has some value then taking out a home equity loan will be more useful as compared to taking out a personal or any other type of loans.

  • You will get much more cash than required in hand depending on the equity of your home which will help you to meet with all your home decor needs.
  • If you have any money remaining in hand you can also use it to pay off your debts to keep it under your manageable limits.
  • You will also get these loans at a comparatively cheaper rate which will not affect your financial health much when you make any new purchase for your home improvement needs.
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This is the reason why most of the people looking for resources to decorate their homes but are already having a few debts against their names opt for a home equity loan. This specific type of loan has saved many from facing the debt traps, looking for debt consolidation and settlement options after considering the debt settlement reviews and other hassles and consequences of non-payment of debts.

  • Renovating your home will be much easier without having to worry about finances and you will have enough means to pay off the home equity loan. The amount of money you receive will be more than enough to meet with all of the expenses of your home improvement project.
  • You will not have to keep any aspect of it on hold due to a shortage of money for a future date and time.
  • In addition to that you will also get an opportunity to appreciate the value of your home which will prove to be an added benefit especially if you want to sell off your property for any specific reasons.

Since home improvement projects are long term investments for increasing the value of your home, putting the value of your home to the best use for that matter will prove to be the most feasible and prudent decision. This is because the current property value, if it is on the high, will increase your borrowing capability.

The cheap factor

The cheap factor
It is better to finance your home improvement project with a home equity loan instead of any other type because of the most significant reason that these loans are cheaper than the others. That means:

  • When you take out a home equity loan, you will end up paying less each month and even at the end of the loan term on the whole.
  • You can also borrow more as your home value would be more than your credit score giving you more opportunity to spend on things that you require to decorate your home.
  • You will also get some additional tax benefits when you take out such loans and thereby save more money in the process.
  • There will be some major expenses to meet during your home improvement process which might lead to an emergency situation. With this type of funding this emergency situation will not become the burden since you will have enough money in hand due.
  • You will not lose control of your finance and debt even in emergency situations and will not have to take out other debts on high interest or even use your credit card.
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Therefore, the home equity loan will prove to be more useful in terms of money savings as well. Since the monthly bills will be lower than the others you will be able to manage your debts more efficiently. With such an effective debt, you will always have your finance moving on the right track and towards the right direction.

Debt To Income ratio

In order to make sure that you enjoy all the benefits that a home equity loan comes with, you will need to know and consider a few points.
Debt To Income ratio
The most significant factor is the Debt to Income or the DTI ratio when you want to take home equity loan. This is the ratio that will determine your financial health. This is actually the ratio that will reflect the amount you earn and the amount you owe.

The most important components of the DTI are the expenses that are especially related to debts. These debts can be of varied types such as:

  • Credit card debts
  • Car loans
  • Student loans
  • Personal loans
  • Current mortgage
  • Your taxes
  • Payments made to HOA and
  • Insurance.

However, it will not include expenses such as your grocery bills, cell phone bills, cable TV package, and other essential expenses for utilities such as gas, water, and electricity. This DTI percentage will show the lenders the money that you will have at your disposal to make the payments every month after you make the payments for all the existing debts.

It is better to have a high DTI. Ideally, your DTI should be 43% or lower to get a home equity loan.

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Therefore, knowledge of your DTI is very important as that will determine the projected monthly payments considering your total pre-tax income as well as your eligibility to get a home equity loan for your home decoration needs.