Using Home Equity To Finance Home Repairs
Both home equity loans and HELOCs allow you to tap into your home equity to borrow money, using your home 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 the borrower can draw as needed.
Home equity loans and HELOCs can be used for virtually any purpose, including funding emergency home repairs. On average, Americans spent $2,231 on emergency home repairs in 2021, a 42 percent increase from 2020. In addition, homeowners have gained significant equity in the past couple of years due to a competitive housing market. The average homeowner with a mortgage has $185,000 in equity.
As repair costs rise and homeowners have more equity to tap into, it makes sense to use home equity to pay for emergency home repairs.
Emergency repair costs can vary depending on the size of your home, the area where you live and the damage’s extent. It is difficult to pinpoint the exact cost of some emergency repairs such as fire/smoke damage due to the unpredictable nature of these events. However, some repairs are more expensive than others. Here is a breakdown of some of the most common emergency home repairs and how much they might cost.
|Repair type||Average repair range||Average cost|
|Septic system replacement||$2,000 to $15,000||$5,838|
Roof repairs, HVAC replacement and septic tank replacement tend to be some of the most expensive emergency repairs on average. However, all of the repairs listed above could be extremely costly depending on the extent of the damage and the size of your home.
Repairing your home’s foundation could cost anywhere from $500 to $40,000 depending on the repairs needed and the size of your home. The average cost of a foundation repair is $4,488. If you just have a minor crack, you might pay around $500, but if you need a major foundation repair, you will likely pay at least $10,000.
There are some preventative measures you can take to avoid major foundation problems:
- Keep an eye out for cracks. If you see cracks in your foundation, it is best to fix them right away to avoid more costly repairs. Fixing problems as soon as you notice them is likely to save you money in the long run. Warning signs of a foundation issue include uneven floors, cracks in the walls, fractures above windows and door frames and doors or windows that stick.
- Keep water away from the foundation. If you notice standing rainwater pooling around your home’s foundation, consider applying soil to make the water slope away from the house. If water seeps into your home’s foundation, it can worsen any structural weaknesses. For this reason, it is also important to clean your gutters regularly.
- Know the life of your foundation. It is always smart to have your home appraised before you move in so that you know how long your foundation is likely to last. Theoretically, your home’s foundation should last up to 100 years, but an appraisal will give you a better idea of your situation.
Roof repairs are some of the most costly emergency repairs, with an average cost of $8,600. The cost of this project varies significantly depending on the size of your home and the extent of the damage. Replacing the entire roof is much more expensive than repairing your existing roof. Fully replacing a roof could cost anywhere from $3,000 all the way up to $40,000 depending on the size of your home and the materials used.
To prevent roof damage, you can do some simple tasks:
- Watch for warning signs. These include missing or curling shingles, missing flashing on chimneys or wall intersections, nails that need to be tamped down and signs of water damage in the attic.
- Clean out gutters. It is important to ensure that your gutters do not retain water when it rains. Cleaning out your gutters regularly significantly reduces the chances of water damage.
- Know the age and life of your roof. The life of your roof depends on when it was installed and the type of material it’s made of. Slate, copper and tile roofs can last up to 50 years while wood shake roofs last about 30 years. Consider the age of the home, as well as the material of your roof. If you live in an older home, it may be a good idea to be extra diligent about maintenance.
The cost of repairing water damage is extremely variable, but the average water damage repair is around $3,030. Water damage can happen in a variety of ways, including flooding, a burst pipe, a leaky roof, clogged gutters, sewage backup, rotted siding or a broken fixture such as a bathtub or toilet.
The cost of water damage repairs depends on the extent of the damage. If you have to remodel your entire bathroom, for example, that’s going to be more expensive than replacing an exposed drain. The earlier you identify water damage, the easier and less expensive it will be to repair.
There are several things you can do to check for and prevent water damage:
- Look out for warning signs. Water damage can make itself known in a variety of ways.
Water damage warning signs
- Bubbling/peeling paint on the walls
- Damaged floors
- Damaged siding
- Low water pressure
- Odd plumbing sounds
- Stains and watermarks on the walls/ceilings
- Water bills that have higher costs than usual
- Take care of your drains. It is good practice to check under your sinks on a regular basis to make sure that none of the drains are leaking. It is also important to avoid pouring grease down your drains or anything else that might lead to a clog.
The average cost of mold removal is around $2,347, but the actual cost depends largely on the extent of the damage. You could pay as little as $60 to repair mold damage or as much as $6,333. If you manage to catch the mold early on, you might be able to save yourself thousands in costly repairs.
Mold can be spot-treated by cleaning and thoroughly drying the wet/molded area. However, this only stops the mold from growing. To get rid of mold spores, you will likely need to hire a professional and improve ventilation in your home to prevent humidity. Left untreated, mold can lead to costly repairs such as replacing walls in your home.
To identify and prevent mold in your home, you should do the following:
- Look for black spots on the walls and windows. The easiest way to identify a mold problem is by keeping an eye out for black spots or growths on your walls, ceilings and windows. Specifically, you’ll want to look in any areas of your home where humidity is high, such as behind the water heater or washer/dryer.
- Look out for other warning signs. Other signs that you might have a mold problem include a moldy odor, water damage, high humidity and unexplained allergic symptoms.
- Use a bleach solution. If you discover mold in your home, you can try cleaning it with a bleach solution. This is only a temporary solution, however, since it will not get rid of the mold spores themselves, only prevent growth.
- Track your home’s humidity levels and improve ventilation. Humidity can be a big contributing factor to mold, so it is important that you try to cut down on humidity and improve ventilation in your home as much as possible.
Replacing your HVAC can be extremely costly, costing an average of $7,000. HVAC systems are notoriously complex and expensive to repair.
Replacing individual parts on your HVAC when you notice the problem is a lot less expensive than replacing the system if you ignore the problem for too long. The typical HVAC system lasts about 15 years, but only when properly maintained.
Here are some things you can do to keep your HVAC system running and prevent costly repairs:
- Replace the air filter. Replace your air filter every couple of months to prevent wear and tear damage and to keep the HVAC system working at full capacity.
- Yearly maintenance. It is a good idea to have a professional look at your HVAC system once a year to ensure nothing is wrong. This regular maintenance ensures that you’ll be able to catch problems early.
- Look for warning signs. If your HVAC system is having trouble staying at the desired temperature or you are having trouble turning it off or on, it is a good idea to get it serviced, as these are potential signs of damage.
Other expensive emergency repairs
Other events or situations can also necessitate emergency repairs. Some common ones can include:
- Electrical repairs: The cost to rewire a home can vary from around $2,000 to $9,000. Your costs for a small electrical repair could be much smaller, but a large house could require far more money to repair.
- Natural disasters: The average cost of a flood claim is $52,000, and that could all have to be paid out of pocket if you don’t have flood insurance. Wildfires cost billions of dollars each year. The costs of these kinds of events vary widely depending on the kind of disaster and your insurance coverage.
- Septic tank replacement: While insurance may cover some septic tank problems, it generally doesn’t cover everything. If you have to pay out of pocket, it can cost up to $15,000 in some situations.
- Termites: Termite damage can cost from a few hundred dollars to several thousand depending on the severity of the infestation and how quickly the damage is discovered. Watch out for warning signs like mud tubes, damp wood, droppings and signs of wood deformation like blistering or bulging.
The best way to avoid these is to be aware of warning signs and keep on top of maintenance, but most homeowners will experience an unexpected repair at some point.
Should I use home equity to finance my repairs?
If you have a significant amount of equity built up in your home and you are facing an emergency repair, tapping into that home equity could be a great way to finance the project. However, there are several things you should consider before making a decision.
Home equity loans and lines of credit are secured, meaning that your home is used as 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.
You should also keep an eye on the housing market before taking out a home equity loan or line of credit. Your home’s equity is variable and may change depending on the housing market. This means that you could end up pouring money into your home only for its value to sharply decline. Take a closer look at the pros and cons of both home equity loans and HELOCs before deciding to use this financing method.
Home equity loan
Home equity loans allow you to take out a lump sum of money that you pay back over a set repayment period. Home equity loans have fixed interest rates and monthly payments, so there will be no surprises. Depending on your home’s market value, your mortgage balance, and eligibility requirements such as your credit score, you can borrow up to 80-90 percent of your home’s value.
Tapping into your home’s equity all at once can leave you at risk of losing money over time. If you borrow up to 80 percent of your home’s equity and property values in your area go down, you could owe more money than your home is worth. Even worse, if you find yourself unable to make monthly payments, you could lose your home altogether.
A home equity loan could be the way to go if you need a large sum of money for an emergency repair. However, you should only borrow against your home’s equity if you are certain you will be able to pay the loan back.
Home equity line of credit (HELOC)
HELOCs are more like credit cards, a revolving line of credit that you can draw from up to a predetermined limit. Once you pay it back, you can begin drawing from it again. HELOCs have variable interest rates, meaning that your rate could change at any time depending on the financial climate.
The major benefit of HELOCs over home equity loans is that you can take out cash on a revolving basis instead of taking out a lump sum. This allows you to only borrow what you need when you need it without getting into unnecessary debt. However, this also means that you need to be diligent about keeping track of your spending. With a variable interest rate and revolving credit, your payments might differ from month to month. Make sure you are only borrowing what you need and that you will be able to pay it back on time, accounting for interest.
If you need to make an emergency repair but are unsure exactly how much it will cost, a HELOC could be a great way to tap into your home’s equity without taking on too much debt. Always keep in mind that tapping into your home’s equity puts you at risk for foreclosure, so you should only do it if you are certain you can pay it back.
Other financing options
If you are looking to finance an emergency repair and you do not want to take out a home equity loan or line of credit, 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 will 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 don’t have a lot of equity in your home, a personal loan may be a more accessible option. Personal loans tend to be quicker and easier to get than home equity loans, but interest rates may be high, especially if you have poor credit. Some lenders even offer home improvement loans, personal loans specifically designed to cover home repairs.
- Government funding. There are government-backed refinancing options such as the 203(k) mortgage. This loan and other government-backed loans are insured by the Federal Housing Administration (FHA). However, your mortgage lender must approve the refinancing, and refinancing a mortgage takes a long time. If you are in an emergency situation, you may not have time to refinance. However, if your credit is poor and you are having trouble qualifying for a loan, this could be a good option.
The bottom line
Owning a home can be expensive, especially when emergency repairs arise. As inflation and supply demands rise, so does the average cost of common emergency home repairs. While homeowners are grappling with these rising costs, they also have an opportunity to take advantage of a competitive housing market and rising home equity.
Using a home equity product to finance emergency repairs could be an excellent decision in the current housing market. However, borrowers with low credit or high debt-to-income ratios may have a harder time qualifying for these products. These borrowers may need to look into other options like non-profit organizations or other ways to make emergency repairs.
If you decide that a home equity loan is the best option to pay for emergency repairs, compare top lenders before deciding on one.