How To Access Home Equity Without Adding Debt

The process of accessing equity from your home can be confusing and overwhelming. With so many different options and paths, it is hard to determine which option works best for you. You may have a concern about adding additional debt or liens to the property, like through a home equity loan or HELOC.

There are several options to take advantage of your house’s equity for credit card debt payments and home renovations. Let’s take a closer look.

1. Cash-Out Refinance

With a cash-out refinance, homeowners like you can use the equity in their properties for home improvement projects, medical bills, and other real estate purchases. Essentially, you take out a new loan that includes the old loan balance, the requested cash-out amount, and closing costs.

The amount of money you get depends on the value of your home and your current mortgage. A cash-out refinance can be beneficial for someone overwhelmed by debt who is looking for a way to consolidate their monthly obligations. Although the loan may carry a higher interest rate than the original loan, the monthly savings (once adding in all the monthly payments) could be substantial, and the consolidation could raise your credit score.

This is also a good option because accessing cash for home repairs can be expensive. This may be a cheaper option than contractor financing or personal loans.

2. Home Equity Line of Credit

A home equity line of credit establishes a line of credit on your property that uses the equity as collateral. The allotted equity line will depend on the equity available in the property. If you are given a line of $100,000, you can take out the full balance at one time or draw on it as needed. Remember there are draw periods and repayment periods. So it is important to understand the specific terms of your HELOC.

This isn’t technically debt, as you don’t need to use the line of credit unless necessary. A home equity line of credit (or HELOC) is a great way to access your home’s equity in an emergency or to keep it as reserve cash in case of a medical emergency or another sudden financial pitfall.

Note, however, that you may need a pretty high credit score to qualify for a home equity line of credit. You’ll also need to have built up at least 15% equity in your home to qualify for most lenders. Furthermore, you can only take out a home equity line of credit on your first mortgage. If you are already in the middle of foreclosure or have other issues with your mortgage balance, your mortgage lender may not agree to a HELOC.

3. Home Equity Loan

A home equity loan is similar to a HELOC because it allows you to access your home equity; however, it closer resembles a traditional home loan due to its structure. You borrow against the equity built up in your property, then pay down that loan over time. The lower your loan balance and the higher your property value, the more money you can get upfront.

A home equity loan is technically a second mortgage loan, so you need to pay closing costs. Depending on the equity you've built up so far, these costs can take a significant bite out of the money you’ll receive. You also need a credit score of 620 or higher and over 20% equity in your property. A low debt-to-income ratio will also help you secure a lower rate.

That said, a home equity loan could be a good option if you don't qualify for other loan opportunities because of your credit score. Keep in mind that a home equity loan uses your property as collateral. If you do not make your monthly payments on the loan, they can foreclose on your property. Don’t sign up for a home equity loan if you already have difficulty paying your mortgage.

4. Home Sale-Leaseback

In a home sale-leaseback, you sell your property to a new owner, who agrees to lease it back to you as a traditional renter.

How does this help you access your home’s equity? When you sell your property, you could pocket a significant amount of money depending on how much equity you’ve built up. Then, rather than having a monthly mortgage payment, you just have an affordable monthly rental payment.

This might be a good strategy if you don’t want to deal with the burdens of homeownership, like property maintenance and fixes. However, you would no longer have total control over your property. Finding someone willing to participate in a home leaseback can be challenging. It may be easier to find a traditional homebuyer.

5. Sell Your Home

You always have the option to sell your property and benefit from the equity you’ve built up so far. Depending on the market value and the price you can ask for your property, you could walk away with hundreds of thousands of dollars, which you can use to make a down payment on a more affordable home. This is a popular strategy for retirees looking to downsize.

6. Co-Ownership With Balance

If you’re looking for even more options to access home equity without adding debt, you can consider co-ownership with Balance. Balance allows homeowners to pay off their existing mortgage and access funds by selling a portion of their home equity vs. taking on additional debt. From then on, you make monthly payments to Balance to cover your occupancy of the home and your share of costs, like insurance and taxes. 

In the meantime, we’ll give you a lump sum you can use for home repairs or upgrades, personal debts, or strengthening your overall financial profile — and you will retain the right to buy us out of the equity we invest in.

In this way, you can access your home's equity without taking on an expensive mortgage or taking on more debt. This is a good way to tackle your current debts without giving up your homeownership status or moving.

Contact Balance Today

Through Balance, you may be able to access your home’s equity for a lump sum without adding additional debt or taking out a new mortgage loan. You can maximize the value of your house’s equity to improve your credit and improve your financial health. Get in touch with one of our representatives today to learn more.


What is a home equity line of credit (HELOC)? | Bank of America

How a Home Equity Loan Works, Rates, Requirements & Calculator | Investopedia

Leaseback (or Sale-Leaseback): Definition, Benefits, and Examples | Investopedia

Understanding your home's equity | My Home by Freddie Mac