How to Use Home Equity to Pay for a Wedding
Weddings can be expensive. Financing a wedding is usually done with the use of credit cards and personal loans; however, these forms of credit can be expensive. Using the equity in your home is a good way to pay for the cost of a wedding while keeping the cost of financing under control. A home's equity can be accessed by obtaining a home equity loan, a home equity line of credit or by negotiating a cash-out refinance.
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Instructions
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Apply for a home equity line of credit. One of the quickest ways to tap into your home's equity is to obtain a home equity line of credit. A HELOC allows a borrower to access a revolving line of credit which is based on the amount of equity in your home. The cash is used by writing special checks that access this particular line of credit, allowing the borrower to easily pay for goods and services associated with the wedding directly from this source of funds. Payments will commence after the draw period has expired. These will be separate from the main mortgage payment.
In order to establish a home equity line of credit, you must contact a mortgage lender and complete and application. The lender will make a decision based upon the borrower's credit and employment history, the amount of equity available in the home and the borrower's debt to income ratio.
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Apply for a home equity loan. A home equity loan is also known as a second mortgage. This type of loan allows the borrower to obtain another mortgage loan against the equity in their home. The proceeds are forwarded to the borrower in one lump sum which can be used to pay for goods and services associated with the wedding. Payments will commence immediately after the disbursement of the proceeds and will require making a separate payment from the original mortgage payment. Applying for a home equity loan involves contacting a mortgage lender and completing an application. The lender will base his decision on the borrower's credit and employment history, the amount of equity available in the home and the borrower's debt to income ratio.
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Apply for a refinance. It may make more sense to simply refinance your original mortgage to keep from having two mortgage payments. In a cash-out refinance, you refinance the original mortgage loan and use the home's appraised value, which will pay off the original mortgage. Any additional funds will be forwarded to the borrower to be used to pay for wedding expenses. The major drawback to this method is the length of time it generally takes to complete the process and the possibility that the house is no longer worth as much as it was at the time the original mortgage was taken out, reducing the amount of equity the homeowner has. Just like a home equity loan, refinancing a home requires contacting a lender and applying for a mortgage.
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Tips & Warnings
The benefit of paying for a wedding with the equity of your home is the fact that the borrower will generally have access to more money than through other sources. Also, the interest rate for any home equity product is mush less than other forms of finance.
Using the equity in your home to finance a wedding can be risky. There is the potential for losing your home whenever money is borrowed against it.
