What Are Home Equity Loans?

Home equity loans and home equity lines of credit are solutions for borrowing a lump sum against your home’s equity. This equity could be used in many ways, such as making home improvements or consolidating debt.

These types of loans usually have lower interest rates than do other types of consumer loans, such as loans secured by personal property or loans secured simply by a borrower’s signature (unsecured loans). First mortgages (the primary loan on a house) generally have the lowest interest rates. Home equity loans have allowed millions of Americans to take control of their debt.

The average household now has nearly $ 10,000 in credit card debt, and borrowing against the value of your home can allow you to pay those bills through debt consolidation.

Home equity loans may have a fixed or variable interest rate. Home equity lines of credit may be more risky. These types of loans can be of great help and benefit, but it’s important to understand the risks attached to them.

These types of loans differ from full refinances in that the first mortgage in not replaced with a new one. The homeowner simply accesses the equity that’s available in the property and borrows against it, thereby creating two separate mortgages, along with two separate payments.

Home equity loans can be a great financial management resource tool when used responsibly. They can be used for debt consolidation, home improvement and more.

Home equity loans are fixed rate home loans that allow you to tap into the money you’ve already invested in your home to finance larger debts at a lower interest rate than most revolving credit options*. To find out what your current home equity is worth, simply subtract your outstanding mortgage balance from your home’s current value.

Home equity loans are a popular financing option for homeowners who need additional cash. These loans usually offer a lower interest rate than credit cards. Home equity loans have a fixed interest rate and a fixed term (the amount of time you have to repay the loan), usually 10 to 15 years.

You make monthly payments on the loan until it’s all paid up. Home equity loans are most commonly second position liens (second trust deed), although they can be held in first or, less commonly, third position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios.

Most commonly, mortgages are set up to be repaid over 30 years. Home equity loans may also have fees. Home equity loans also allow you to tap the equity, so that you can get the cash without getting refinanced.

David Castro is the author of the Home Equity Loans Blog, learn more at http://www.homequityloanshelp.com

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What are the requirements to get a home equity line of credit? See this video for more information.

Transcript

What are the requirements to get a home equity line of credit? It’s really not that different from getting a mortgage, but you do need to understand that a home equity line of credit is a bank product. It is a private product. The bank is going to keep that on their books. Where mortgages, 99.3% of all mortgages taken out in 2014 were government backed or insured. Anytime you get a mortgage, that lender or bank has to satisfy the guidelines that the Federal Government passes down. These would be through Fannie Mae, Freddie Mac, FHA, VA, or USDA. Our home equity line of credit is what’s called a Non-QM Loan. It is a Bank Loan. It is their product. They set their own guidelines and policies of what they require in order for you to qualify.

A good rule of thumb is if you qualify for a mortgage, you will qualify for a home equity line of credit. Some of these banks don’t even have a minimum credit score that they look at. They’re looking at the total health of the file. Some that do publish credit scores we’ve seen as low as 610. As high as 700. To be honest with you, it’s all over the board. It’s kind of a double-edged sword. It’s good because if you can’t get qualified for a mortgage, there might be an opportunity for you to get qualified for a home equity line of credit. It’s bad because there’s no uniformity. I can’t tell you across the board what it takes to qualify for a home equity line of credit, but you do need positive cash flow. You need decent credit.

Sometimes it would help to have some equity, about 10%. Although there’s quite a few banks out there that do 100% financing. We would recommend that you have at least 10% financing because most banks go up to 90% loan to value. If you liked that video, be sure to like it here, subscribe to our channel. Take care. God bless.

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