What should you do with $100,000 in home equity?

One of the most valuable assets homeowners possess is their home equity. And, right now, that asset is very valuable for the average homeowner, because the last several years have resulted in significant home value growth in most markets. That, in turn, has resulted in the average homeowner having nearly $200,000 in tappable home equity to draw from.

But while the money from your home's equity can be used for a wide range of purposes, most lenders won't allow you to pull out the full amount of equity in your home. It varies by lender, but most will cap a home equity loan at 80% to 90% of the home equity value, meaning that the average homeowner can't necessarily access all $200,000 of tappable equity. 

So, let's say you borrow a total of $100,000 from your home equity instead. In that case, you still have a good financial opportunity at your fingertips. And, there are various strategies you can use to put that equity to work for you.

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What should you do with $100,000 in home equity?

While you aren't required to use the money from your home equity for any specific purpose, there are some uses that may make more sense than others. These include:

Pay down high-interest debt

One of the most financially responsible choices you can make with your home equity is to pay off high-interest debt. Credit card balances, personal loans and other high-interest debts can be a financial burden — and if you aren't able to pay them down in a timely manner, the interest charges alone could be a slippery slope. 

But the interest rate on a home equity loan is typically a lot lower than the rate you're paying on a credit card or another type of loan. So by using your home equity to clear these debts, you can save a significant amount on interest payments and improve your overall financial health.

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Make home improvements

Another good use of home equity is to make home improvements. Enhancing your home can increase its value, improve your quality of life and potentially reduce ongoing maintenance costs. 

And, $100,000 gives you a significant amount of money to work with. If you take this route, it can be helpful to consider projects that have a good return on investment, such as kitchen and bathroom renovations, adding energy-efficient upgrades or creating additional living space.

Create an emergency fund

Building or replenishing an emergency fund is a wise financial move. An emergency fund ensures you have a safety net in case of unexpected expenses, such as medical bills, car repairs or job loss. 

And, most experts recommend having at least six months worth of income stashed away in your emergency fund. By using your home equity for this purpose, you'll have a secure financial cushion when you need it most.

Invest in your retirement

If you have $100,000 worth of equity in your home, you may also want to consider using your home equity to bolster your retirement savings. You can contribute some or all of the money to a tax-advantaged retirement account, such as an IRA or 401(k). 

Or, if you're already maxing out your retirement contributions, you might explore other investment opportunities like a diversified portfolio of stocks, bonds or real estate.

Cover education expenses

If you have children or grandchildren and are planning for their higher education, you can also use some or all of the $100,000 from your home equity to fund their college tuition. If you take this route, it may be helpful to consider opening a 529 college savings plan or other education-specific accounts. This can reduce the financial burden of student loans and provide opportunities for your loved ones.

Invest in real estate

Real estate can be a lucrative investment, and using your home equity to invest in rental properties can diversify your income streams. Just be sure to conduct thorough research and due diligence before venturing into the real estate market, as it comes with its own set of risks and responsibilities.

Start or expand a business

Entrepreneurial aspirations can become a reality with the help of your home equity. You can use the funds to start a new business or expand an existing one, but ensure that you have a well-thought-out business plan and a clear path to profitability before you earmark any of the money from your home's equity for this purpose.

Diversify your investment portfolio

Another option is to invest your home equity in a diversified portfolio of stocks, bonds or other assets. Diversification can help spread risk and potentially provide higher returns over time. If you aren't sure how to approach this the right way, it may help to consult a financial advisor to create an investment strategy tailored to your financial goals and risk tolerance.

Focus on charitable giving

Donating a portion of your home equity to a charitable cause can be a fulfilling way to make a positive impact on your community. And, you may also benefit from potential tax deductions associated with charitable contributions.

The bottom line

What to do with $100,000 in home equity is a decision that should align with your financial goals, risk tolerance and personal circumstances. Whether you choose to pay off debt, invest in your future, make home improvements or any other option, it's essential to make well-informed decisions that support your long-term financial well-being. So, before you make any moves, be sure to thoroughly evaluate your options in order to make the most of your home equity.