On the surface, borrowing from your accumulated home equity may seem like an unwise and potentially risky decision. After all, it took years, if not decades to build up that equity and borrowing from it will reduce your home's value. And, if you fail to make your repayments, you could even potentially lose your home to the lender. But while those concerns are fair and legitimate, in today's unique economic climate, borrowing with a home equity loan, specifically, can still be a cost-effective and valuable move.
With inflation still making the costs of everyday living prohibitive and higher interest rates on pause for an extended period now, homeowners may be looking for ways to make ends meet. But whether you need the money to complete a major home renovation or repair or for something else entirely, borrowing a large, $100,000 home equity loan should be carefully considered. In reality, there are likely few homeowners who could realistically qualify for a home equity loan of this size right now. Below, we'll detail three of them.
See how much home equity you could potentially borrow here.
If you're a homeowner who falls into one or more of the following three categories, then a $100,000 home equity loan could be available for you now:
There's a misconception that home equity is only painstakingly built up over time.
But even if you only recently purchased your home and made a substantial down payment when doing so (think over 20%), you may have enough equity to borrow $100,000 via a home equity loan. That's because home equity is calculated by deducting your mortgage balance from your home's current value.
Let's say you bought your home for $500,000 and made a down payment of $250,000; your home's value has since increased to $600,000, but your mortgage balance is now $200,000. In this case, you'd have equity of $400,000 ($600,000 - $400,000). While most lenders would require you to keep a 20% buffer, that would still leave you with $320,000 worth of equity to borrow from now. So a $100,000 home equity loan could be relatively easy to obtain, and it would leave a significant six-figure sum of equity in the home for the future, even if you bought the home in the last few years or so.
Learn more about borrowing with a home equity loan now.
On the other end of the spectrum, maybe you're a homeowner who didn't make a big down payment. Maybe you even had to pay private mortgage insurance (PMI) until you reached the traditional 20% equity threshold. But if you've built up your home equity since, you could qualify.
And this doesn't necessarily mean you have had to pay down all or even most of your mortgage. Home prices and values are determined by a myriad of factors, including location. So while your progress toward paying down your mortgage may not be extensive, your home's value could have surged in recent years, as it did in many parts of the country. In these instances, veteran homeowners should have little difficulty securing a $100,000 home equity loan now.
Fundamentally, homeowners will need to first have built up their home equity to have enough to borrow a six-figure amount. But that doesn't mean that you can automatically withdraw from it if you have. Strict eligibility requirements will still apply as they would for most other borrowing products and that means having a good credit score with a history of on-time payments. Without it, even with enough equity in the home, you may not qualify to get the loan.
On the other hand, some lenders will approve the loan but at a prohibitive interest rate. Borrowing that way, however, would be particularly risky, especially for a loan amount like $100,000. Payments here will be high even for qualified borrowers but for those with mediocre credit, they'll be even more expensive. And that's a risk worth avoiding considering that lenders can repossess your home if you fail to make your payments as agreed upon.
Securing a $100,000 home equity loan can be difficult but not impossible. If you made a large down payment at closing, have since built up significant equity in the property and have a good credit score, most lenders will approve you for a $100,000 home equity loan. Just be sure to closely compare this borrowing option against others to ensure it's the right fit for your financial needs. And crunch the repayment costs with precision to determine long-term affordability.