Can You Use Home Equity to Help Your Family?

When a child announces they’re going to college, getting married, or saving for a down payment, a lot of homeowners feel the same thing: A desire to help, paired with a very real question about how to do it.

If you’ve owned your home for a while, there’s a chance you’ve built some home equity. And while that equity isn’t cash sitting in a checking account, it may be accessible in ways that could make a real difference for your family.

Here’s what’s worth knowing about using home equity to help your family, how the borrowing options work, and important risks to think through before moving forward.

Refresher: How Does Home Equity Work?

Home equity is the portion of your home’s value that you actually own, or the difference between what your home is worth and what you still owe on your mortgage. If your home is valued at $500,000 and you have $200,000 left on your mortgage, your equity is roughly $300,000.

As home values rise and/or mortgage balances fall, that number grows. For many long-term homeowners, it might be one of the most substantial assets they have access to. For that reason, many homeowners wonder: Can you use home equity to help your family with major moments, like buying a home, funding education, or covering a significant expense?

Depending on your qualifications, available equity and lender requirements, it may be possible. But how you access it, and whether you can, matters.

Two Common Ways to Access Home Equity

There are two primary borrowing options most homeowners consider when tapping into equity: a home equity loan and a home equity line of credit, often called a HELOC.

Home Equity Loan

A home equity loan gives qualified borrowers a lump sum upfront, which they repay over a set term, usually at a fixed interest rate. It works similarly to a traditional mortgage with predictable monthly payments, an end date, and a defined loan amount. This can be a good fit when the need is specific and the cost is known in advance, like contributing to a down payment or renovating a room into a nursery.

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit secured by your home and functions similarly to a credit card in that you can draw funds as needed up to an approved limit. HELOCs have a draw period in which you can access the funds. This can work well for needs that unfold over time, like helping with tuition payments across multiple semesters, for instance, or funding a series of home improvements.

Important: What’s at Stake

Both options use your home as collateral. That’s very important to understand. If you borrow against your home and are unable to repay, the home could be at risk. That doesn’t necessarily mean these tools aren’t worth considering, but you should be very careful and thoughtful when looking into these options.

What Can You Use Home Equity For When It Comes to Family?

There’s no shortage of meaningful ways homeowners use equity to support the people they love. Some possibilities include:

• Helping a child or grandchild with a down payment on their first home
• Contributing to college or graduate school tuition
• Covering costs for a significant family event, like a wedding
• Funding home modifications, like making a space safer or more accessible for an aging parent or family member moving in
• Consolidating high-interest debt to reduce monthly financial strain

For many homeowners who’ve carefully considered the risks and their situation, using equity this way feels like putting what they’ve built to work in a meaningful way.

What to Think Through Before You Borrow

Using home equity to help your family works best when it fits within the full picture of your financial life. For the best sense of that picture, you may want to speak with a qualified financial professional. But in general, there are a few things worth sitting with before you decide to borrow against equity:

Your retirement timeline and monthly cash flow

Adding a loan payment to your monthly expenses is something to plan around, especially if you’re approaching or already in retirement. Make sure the payment fits your budget without creating pressure in other areas.

How much equity you want to retain

Borrowing against your equity reduces the stake you hold in your home. It’s worth thinking about how much of that equity you want to preserve for your own housing security, for future needs, or as part of what you eventually hope to pass on.

The difference between a loan and a gift

If you’re planning to give the funds to a family member rather than keeping the obligation yourself, it’s worth being clear about the expectations on both sides. Some families choose to document these arrangements; others don’t. Either way, it’s very important to be clear about expectations on all sides.

Market conditions and your home’s value

Home values can change over time. The equity you have today isn’t necessarily fixed. Borrowing against your home when values are high may make sense at the time, but it’s worth considering what your position would look like if values shifted.

Key Takeaways

• Home equity is the difference between your home’s current value and your remaining mortgage balance.
• You might be able to use home equity to help your family with big goals, like a down payment, education costs, or major life events. Qualified borrowers typically do this through a home equity loan or a HELOC.
• A home equity loan provides a lump sum at a fixed rate; a HELOC offers a draw period with more day-to-day access to funds. Both use your home as collateral.
• Before borrowing, it’s worth reviewing your cash flow, retirement timeline, and how much equity you want to retain, among other financial considerations.

Final Thoughts

Using home equity to help your family can be worth considering in the right situation. If your financial situation can support it, it can be a meaningful way to put what you’ve worked hard to build to good use.

The goal should be to make a well-informed choice that helps your family while keeping your own financial footing solid. If you’re curious about what your equity might look like and whether a home equity loan or HELOC could be a good fit, a conversation with a banker is a good place to start.