A new study recently released by Bank of America has found that most first-time homebuyers are unaware of the potential uses of a home equity line of credit (HELOC).
According to the data, more than 36 percent of first-time homebuyers wouldn’t open a HELOC because of a lack of understanding as to how it works. Of those that would, the disparity on what they would use it for is evident between experienced homebuyers and first-time homebuyers.
Home improvements were the most popular use of HELOCs, with 58 percent of all homeowners noting that this was what they put their line of credit toward. Thirty-five percent said they used a HELOC to consolidate their debt, and only 11 percent said they would use it for emergency funds. Of those questioned for the survey, 10 percent of homeowners have yet to tap into their home equity line of credit.
Between experienced buyers and first-time buyers, 92 percent said home improvements was their goal, compared to 81 percent, respectively. Eighty-one percent of experienced buyers said they would use their HELOC to consolidate debt, while only 62 percent of first-time buyers would take out credit on their home to do the same. Only 61 percent of first-time homebuyers would use a HELOC for emergency funds, as opposed to 77 percent of experienced homeowners. Education expenses amounted to 74 percent for experienced buyers, and only 56 percent of first-time homebuyers.
When considering what type of home to buy, first-time homebuyers were more willing to consider a home that they could fix up themselves. Seventeen percent of first-time homebuyers said they wanted a home they could make major renovations to, as opposed to 10 percent of people who had already owned at least one home. Thirty-nine percent of first-time homebuyers said they wanted a house that they could make small cosmetic changes to. Experienced homebuyers were almost equally as willing to settle for a house with small changes, at 31 percent.