Most Popular Reasons Why Homeowners Across US Are Considering Home Equity Loans

Despite low buyer demand, home prices remain steep throughout the U.S. Owing to this, many homeowners have seen the amount of equity they’ve built into their houses increase. As a result, some are considering tapping into that extra value with a home equity loan.

There are many reasons why someone would consider borrowing against their home equity. When a homeowner utilizes the LendingTree marketplace to shop around for a home equity loan lender, they select one of five reasons for why they’re seeking the money. Those are:

• Making home improvements
• Consolidating debt
• Getting money for investment purposes (besides home improvements)
• Getting extra retirement income
• Using the money for another reason

By analyzing borrowers’ home equity loan requests on the LendingTree marketplace in the first quarter of 2024, we determined why homeowners across the 50 states are thinking about tapping into their home equity.

Key findings

• Across the 50 states, 40.58% of those seeking a home equity loan cited paying for home improvements as their primary reason. Nationwide, this was the most commonly cited reason why homeowners wanted to tap into their home equity, but it wasn’t the most popular in every state.
• 33.78% of homeowners considered tapping their home’s equity to help consolidate debt. This was the second most commonly cited reason among LendingTree users. However, in some states like Wyoming, Idaho and South Dakota, it was the most commonly cited. Because home equity loans often come with lower rates than other types of debt — like credit card debt — using one to pay off another higher-cost loan could help borrowers save money.
• Using a home’s equity for investment purposes — other than home improvements — was the main goal for 7.68% of homeowners. Examples of investments include buying a property to rent or purchasing shares of a company via the stock market.
• Only 2.56% of homeowners considered using their home’s equity as retirement income. Retirees who’ve generated considerable equity in their homes might consider tapping into it as a temporary boost to their incomes. But this strategy shouldn’t be pursued recklessly. As with any debt, the money needs to be repaid, even if you’re retired.
• A significant percentage of homeowners — 15.39% — considered a home equity loan for a reason other than the ones listed above. Though we don’t know how these potential borrowers hoped to use a home equity loan, they may have wanted one to pay for college, a wedding or emergency-related expenses.

States where the largest share of homeowners considered tapping home equity for home improvements

• Mississippi (48.21%)
• Maine (46.57%)
• West Virginia (44.31%)

States where the largest share of homeowners considered tapping home equity for debt consolidation

• Wyoming (44.21%)
• Idaho (43.26%)
• South Dakota (40.86%)

States where the largest share of homeowners considered tapping home equity for investment purposes

• Utah (11.10%)
• Alaska (10.09%)
• Hawaii (9.78%)

States where the largest share of homeowners considered tapping home equity for retirement income

• Nevada (3.73%)
• Vermont (3.41%)
• Florida (3.28%)

States where the largest share of homeowners considered tapping home equity for another reason

• Hawaii (18.48%)
• New Mexico (17.88%)
• Alaska (17.87%)

Think carefully before getting a home equity loan

That said, home equity loans aren’t without risks. Chief among them is that failure to pay back a home equity loan can result in foreclosure. Even if it doesn’t, it can still ruin your credit and otherwise make it much harder for you to get approved for another loan — regardless of the type.

Homeowners shouldn’t seek a home equity loan unless they’ve thought through potential pros and cons. Just like a first mortgage, a home equity loan isn’t something that should be taken lightly. Failure to pay it back can have serious negative repercussions.

Even if you could get approved, getting a home equity loan may not be best for you. It’s sometimes better to avoid borrowing money, even if it means you’ll have to spend more time saving up for a big purchase.

Tips for tapping into your home’s equity

Regardless of why homeowners are thinking about tapping into their home equity, keeping the following tips in mind can help them save money and better manage the funds they borrow.

• Think about a HELOC instead. While a traditional home equity loan as a lump sum can be a good option for some, it isn’t necessarily the best for everyone. A home equity line of credit (HELOC), which functions more like a credit card where you can borrow money up to a certain limit and only need to pay back what you use, might be better. While HELOCs aren’t without potential drawbacks, like variable interest rates, they’re worth considering, especially for those planning to tackle something like a relatively small home improvement project.
• Make a repayment plan. As mentioned, if you rush to get a home equity loan without giving any thought to how you’ll pay back what you borrow, you could seriously hurt your finances and risk losing your home. Before borrowing a single cent, create a budget and be honest about whether you can pay back what you borrow without stretching yourself too thin. The more prepared you are, the easier it’ll be for you to manage your loan.
• Shop around and compare offers from different lenders. By shopping around and comparing offers from various home equity loan lenders, homeowners can increase their chances of finding a lender willing to work with them. Because different lenders can offer different rates to the same borrowers, shopping around can also help borrowers secure a lower rate.

Methodology

To conduct this study, researchers analyzed nearly 416,000 home equity loan inquiries from users of the LendingTree online loan marketplace in the first quarter of 2024. Data was derived from users living in each of the nation’s 50 states, excluding the District of Columbia.