A home equity loan is a type of loan made available to homeowners who wish to use the equity of their home as collateral and security for their debt. These loans are given once in one lump sum and can be used to consolidate debt, invest in properties or for finance expenses such as home renovations, medical bills or even college tuition.
What are the Benefits of a Home equity Loan?
Home equity loans are ideal because they provide easy access for homeowners to get large amounts of cash relatively fast and have the freedom and flexibility to use that cash for any purpose. A big advantage for a home equity loan is that they are considered safer by lenders in comparison to other types of loans because they are secured by your home. This allows you to receive lower interest rates than that of credit cards or other unsecured loans. Home equity loans have become a popular choice for people who wish to use the value of their home to receive a loan and consolidate their credit card debt. By clearing their remaining credit balance with a home equity loan, the consumer is left with a lower interest rate and a single monthly payment.
Do I qualify for a Home Equity Loan?
Home equity Loans can be a risk for lenders. Prior to lending, lenders will consider the following to determine whether or not you qualify for a loan.
- Are you a Home Owner?
To qualify for a home equity loan you must be a home owner. This means that you must own property; you do not necessarily have to live at the property you own. It is also important that the property you own has available equity of 20% or more of the total home value.
- What is your Income?
This one is a given, Lenders will request information and proof of income in order to guarantee that an applicant can afford the monthly payments. The more assurance the lender has that the borrower will be able to afford the monthly loan payments, the higher the chance that the applicant can qualify for a home equity loan.
- What is your Credit Like?
Your credit history will help the lender determine the interest rate for the home equity loan. The lender will receive and review the applicants credit history from the credit-reporting agency. If your credit is good, this provides less risk to the lender and will result in a lower interest rate. However if your credit is poor you may experience a higher interest rate than you would have your credit of been good.
- Current Property Value and Home Equity?
The lender will asses the current value of your home and determine how much equity is available for a Home Equity Loan. For example if your home is valued at $500,000 and your current mortgage is only $100,000, this would mean that you have $400,000 in equity in your home. The higher the value of your property and the lower the current mortgage amount, the more equity you will have available in your property. This will ultimately be the determining factor of the loan amount you qualify for. The more equity you have in your home, the more money you are able to borrow.
What kind of rates can I expect?
If you do qualify for a home equity loan you can almost always expect the interest rates to be slightly higher than the first mortgage. The reason for this is because the first mortgage has priority on the assets of your collateral in the event that monthly payments are not made and default occurs to repay the loan. Our rates for a Home Equity Loan start at 6.99%. The exact interest rate depends on four factors: Income, Property Value, Home Equity, and Credit.
How much can I qualify for?
The amount of money you can borrow is based on the amount of value you have in your property. To find out how much equity is in your home take the total value of your property minus the remaining balance of your mortgage. For example, Marys house is worth $800,000 and she has a remaining mortgage balance of $300,000. She would have $500,000 of equity in her home. The next thing we asses is your current Loan to Value Ratio (LTV), we provide loans of up to 80% of the value of your property. If we apply this to the above example, Mary has a current LTV of 37.5%, based on this she would be entitled to a maximum $340,000 loan. There is a minimum loan requirement of $20,000, this is to make the loan worthwhile as there are costs entailed such as appraisal and closing costs so you want to ensure if you are paying those fees the amount you are borrowing is worthwhile.