I'm 38, lost my job last week, and my basement just got flooded — which will cost me a depressing $20,000. My parents don’t have money to lend me. Is taking out a HELOC my only option?

What is a HELOC?

A HELOC is a line of credit that lets you borrow money against the equity you’ve built in your home, usually up to 85% of your home’s appraised value, minus what you still owe on your mortgage.

You can draw from it as needed during what's called the “draw period” (typically five to 10 years) and during that time, you only have to make interest payments. After that, you enter the “repayment period,” when you start paying back both the principal and interest.

If you already have a HELOC open and you're confident that you can find employment within a few months, using it might make sense, especially for urgent home repairs. But if you’d need to apply for one while unemployed, this might not be the best strategy — unless you can prove to the lender that you have alternative income or savings.

In that case, it may be time to consider alternatives. Let’s walk through the pros and cons of a HELOC in this situation.

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HELOC: Lifeline or landmine?

When you're staring down an unexpected $20,000 home repair with limited savings, a HELOC can look like a solid financial lifeline. But you should do your homework before acting on this option.

The pros

One of the biggest perks is that interest rates are usually much lower than what you’d get with a credit card or personal loan, especially if you have good credit. That alone can save you a chunk of change over time.

HELOCs also offer flexibility that most loans can’t match because you're not forced to borrow a big lump sum all at once. Instead, you can draw what you need, when you need it.

There’s also a potential tax break in play. If the funds go toward qualified home improvements, the interest might be deductible come tax time. Not everyone qualifies and the IRS rules can change, so it’s worth running this perk by a tax professional to see if you qualify.

Don’t forget that this is equity you’ve already built. Instead of racking up high-interest credit card debt, you’re tapping into an asset you own. In some cases, that can be a smarter way to ride out a rough financial patch.

But it’s also important to understand the risks.

The cons

If you’re unemployed and don’t already have a HELOC in place, getting one approved could be tough. Lenders usually want proof of reliable income before handing over access to your home’s equity. Without that, you could get turned down or face higher interest rates as well as stricter repayment terms.

And of course, a HELOC is backed by your home, so if things don’t work out — such as borrowing more than you can handle or your job search takes longer than expected — you could risk losing your house.

There’s also the matter of variable interest rates. Most HELOCs don’t come with a fixed rate, which means your monthly payments could go up if interest rates rise, which is not ideal when you’re already juggling financial instability.

While HELOCs can be great in a pinch, they’re not a replacement for long-term financial stability. They can buy you some time, but they won’t solve the bigger picture if income doesn’t come back into the equation soon.

If using a HELOC feels like stepping into risky territory, you're not completely out of luck. There are other ways to handle financial emergencies without putting your house on the line.

Alternatives for borrowing money in a pinch

If your credit is in good shape, you might qualify for a credit card with a 0% introductory annual percentage rate (APR). That could give you a year or more to pay for the repairs without accruing interest, but the key is to be sure that you have a plan to pay off the balance before the promotional period ends.

Credit unions are another option worth exploring, as they tend to be more flexible with personal loans than traditional banks and often offer better rates. If you are a member with a credit union or have a local branch nearby, start there.

Depending on where you live, there may be government or nonprofit programs available to help cover emergency home repairs, especially for issues like leaks, water damage or mold. These programs often support veterans, American Indian or Alaska Natives, those with limited income and residents of rural areas.

Picking up temporary or gig work can also be helpful as it can improve your standing with lenders. Even a modest stream of income is better than no income when you're trying to qualify for financial loans.

Using a HELOC to weather a financial storm isn’t necessarily a bad idea if you already have one open and feel confident about landing a job soon. In that case, borrowing modestly to keep your home in working order could be a smart, cost-effective move.

But trying to open a new HELOC while unemployed? That’s a much riskier path. Without income, lenders may shut the door on you. And even if you happen to get approved for a HELOC, it could put your most valuable asset — your home — in jeopardy, especially if your financial situation doesn’t bounce back in time.

When it comes to deciding on a HELOC, weigh your options and consider speaking to a financial advisor before making any big decisions.