After hurricanes Helene and Milton battered much of the East Coast of the United States and fires raged in the West, many homes were destroyed. The damage from the two hurricanes could soar over the $55 billion mark.
If you live in one of the areas affected by disasters, your first thoughts may be about how to keep paying your mortgage. Luckily, there are forbearance plans available depending on where you are located. This can give you breathing room to get back on your feet.
Many people are also wondering how to pay to repair homes that may have been damaged. The first line of defense is usually your home insurance policy. However, Florida’s exorbitant insurance costs have led some people who own their homes outright to not pay for home insurance. Mark Friedlander of the Insurance Information Institute told CBS News in July that as many as 15 to 20% of Floridians have opted to go without insurance. That decision may have been very costly for some people who later found themselves in the path of two major hurricanes.
Hurricane Helene hit locations that are not usually targets of a hurricane’s path of destruction. In areas of North Carolina, Georgia and South Carolina, where severe flooding destroyed many homes, less than 1% of people may have flood insurance through the federal program. Floods are often not covered by traditional home insurance policies. There may be some local, state and federal ways to obtain funds to repair your home, but there’s no guarantee that you will receive funds and it could take months for them to come through.
If you do not have the cash available to repair your home and are wary of emptying your emergency fund or running up your credit cards, another solution may be to tap into your home equity. Even if your home is partially damaged, you may be able to get a home-equity loan or access a home equity line of credit (HELOC).
Benzinga spoke with Carma S. Peters, NCCO, President & CEO of Michigan Legacy Credit Union, about using your home equity during a disaster. She pointed out that most lenders will only lend 80% of your home’s value on a home-equity loan. This means that if the home is worth $200,000 and you have a balance of $100,000 on your first mortgage, there would be $80,000 available to potentially be used for a home-equity loan. Making this move would also mean you would lose your home equity until the loan is repaid.
She added that even if your home has been damaged, you can still receive a home-equity loan. “You can get an appraisal based on the repairs/upgrades being completed,” she said. “Not every institution may accept this type of appraisal. Additionally, there are some added costs, as the appraiser has to come out twice to verify the completion of the repairs/upgrades.”
If you don’t know how much of your equity you need to access or the repairs are minor, a HELOC will let you draw money over time rather than receiving a lump sum. This may be more manageable if you are planning to make repairs gradually. However, there are some cons to this approach. Your interest rate will likely be variable and could go up. Also, Ali Zane of credit repair firm iMax Credit said another risk exists. “After major disasters, financial institutions may reassess local property markets and if your home’s value drops, you could suddenly find yourself without access to the funds you anticipated.”
Handling unanticipated home repairs is never easy, especially after the upset of a major disaster. If you are one of the thousands of people coping with funding a sudden unplanned home improvement, take your time in considering your options. Make sure you fully understand your total costs and get quotes from multiple contractors if you are not doing the work yourself. Remember, your original lender is not your only option for a home-equity loan or HELOC. You can also shop around for different rates and terms to ensure you are comfortable with your choice.
Accessing your equity is a big decision; if your financial situation becomes precarious, you could put your property at risk. However, if your home is not livable in its current condition and you need money for projects such as mold remediation, replacing flooring or repairing a roof, this may be when your home equity can work for you.