Using home equity to finance emergency repairs
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Both home equity loans and lines of credit (HELOCs) allow you to tap your home’s equity to borrow money, putting the property up as collateral. Home equity loans are lump-sum installment loans that typically come with a fixed repayment period. HELOCs are more flexible, providing a line of credit similar to a credit card from which you can draw as needed. As home repair costs and levels of equity rise, it might make sense for you to use home equity to pay for emergency fixes.
- The average homeowner spent $2,321 on emergency repairs in 2021, according to Angi.
- The average homeowner possesses roughly $300,000 in equity as of the second quarter of 2022, according to CoreLogic.
- Analysts expect homeowners to invest less in remodels and repairs in the upcoming year, with growth projected to tumble from 16.1 percent in 2022 to 6.5 percent in 2023, according to the Joint Center for Housing Studies at Harvard University.
- Forty-six percent of homeowners made repairs in 2021, according to Houzz, and approximately 35 percent planned repairs for 2022.
- Thirty-two percent of respondents to a 2022 Bankrate survey were “very uncomfortable” with their amount of emergency savings.
Costly emergency home repairs
Emergency repair costs vary depending on the size of your home, the area where you live and the extent of the damage. It’s difficult to pinpoint the exact cost of some emergency repairs such as fire or smoke damage due to the unpredictable nature of these events. However, some repairs are more expensive than others. Here’s a breakdown of some of the most common emergency home repairs and how much they might cost.*
|*Cost estimates as of Nov. 2022
|Repair||Cost range||Average cost|
Other common emergency home repairs
- Natural disasters: The average cost of a flood claim was more than $31,000 as of 2016, according to the National Flood Insurance Program. That could all have to be paid out of pocket if you don’t have flood insurance. Other disasters like wildfires have costly ramifications, as well.
- Termites: Fixing termite damage can cost a few hundred dollars to several thousand depending on the severity of the infestation and how quickly the damage is discovered.
Should I use home equity to finance my repairs?
If you have a significant amount of equity built up in your home and are facing an emergency repair, tapping that equity could help finance the fix, especially now that equity levels are so high.
“Although remodeling market gains are expected to cool significantly next year, homeowners still have record levels of home equity to support financing of renovations,” says Abbe Will, associate project director of the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies.
Two caveats to tapping equity, though: Home equity loans and HELOCs are secured, meaning your home is the collateral. Secured loans typically have lower interest rates and better terms, but you run the risk of losing your home if you default on the loan. Your level of equity can change depending on the housing market, too, so you could end up pouring money into your home only for its value to sharply decline.
Homeowners still have record levels of home equity to support financing of renovations.
— Abbe WillRemodeling Futures Program, Joint Center for Housing Studies, Harvard University
Other home repair financing options
If you’re needing to pay for an emergency home repair and don’t want to take out a home equity loan or HELOC, consider the following options:
- Homeowners insurance claim: If you have time to wait for a claim to be processed and paid out, a homeowners insurance claim could be a cost-effective option. You’ll need to ensure that your insurance provider covers the repair and how much your deductible is before you consider this.
- Personal loan: If you don’t have strong credit or a lot of equity in your home, a personal loan might be a more accessible option. Personal loans tend to be quicker and easier to get than home equity loans, but the interest rates are relatively higher, especially if you have poor credit. Some lenders even offer home improvement loans, personal loans specifically designed to cover home repairs.
- Government-insured mortgages: Some government-backed repair loans, such as a 203(k) mortgage, a VA renovation loan or a USDA Section 504 home repair loan, can help with either minor repairs or major rehabilitation projects. If you’re in an emergency situation and your home isn’t habitable, you might not have the luxury of time to obtain one of these loans, but they can be a viable option if you’re able to plan ahead and qualify.