From home improvements to using home equity for emergency funds, borrowers are using their housing wealth to extract cash for other expenses, according to a study by LendingTree released on Monday.
The study assessed home equity loan requests since the start of 2018 to reveal the primary reasons borrowers are utilizing funds and comparing data across cities to find regional biases in how these loans are used.
The study found that the most common use of this type of loan was for home improvement projects with 43 percent applications studied by LendingTree applying for the loan for this purpose. It also revealed that real estate investors borrowed the most. “Borrowers who were looking to invest in another property had the highest property values and loan amount requested,” LendingTree said. On an average, these borrowers requested $103,625 in loans for property investments.
For non-property investments, borrowers typically requested a loan against their home for an average of $80,241, the study indicated. Emergency expenses also found a place among home equity loans, though this group had the “lowest amount requested of $35,747 and also kept their loan-to-value (LTV) low at 51 percent,” LendingTree said.
Speaking of LTVs, borrowers who took these loans to consolidate their debt had the highest LTV of 74 percent the study found. Additionally, just over 1 percent of home equity loan requests were to fund retirement and were typically made by those over the age of 63 years.
Cleveland, Kansas City, and Boston were the top three cities where borrowers took home equity loans towards home improvement projects. On the other hand, Raleigh, Minneapolis, and Las Vegas ranked high among home equity loans taken for debt consolidation. Not surprisingly, San Jose, Miami, and Austin were the top three cities for using home equity for investment purposes. San Jose also was the top city for home equity loans to buy an investment property, along with Raleigh and Miami.
While borrowers in St Louis, San Francisco, and Columbus mostly used loans against their home to fund emergency expenses, those in Cape Coral and Daytona Beach, Florida; and Charleston, South Carolina used home equity to fund their retirement.