Introduction Home equity is simply the valuation of your home reduced by the balance amount you are yet to pay to your financial institution. You can also get a home equity loan or home equity line of credit also known as HELOC if you have built up equity in your home. This enables you to secure funds based on the value of your home, and you are normally able to access money at slightly lower rates as compared to other types of loans. Here is information on how to go about getting a home equity loan, including how to become eligible for this financial product.
How to Know if You Have Enough Home Equity The first thing that one needs to do is to find out whether he or she has enough equity in his or her home to access a home equity loan. In general, you can borrow up to eighty-five percent of the fair market value of the homes minus any remaining balance on another mortgage. For example, if your home is currently worth dollar two hundred thousand and you owe dollar one hundred twenty thousand on your mortgage, then:For example, if your home is currently worth dollar two hundred thousand and you owe dollar one hundred twenty thousand on your mortgage, then: Home value dollar two hundred thousand Take away remaining mortgage $120,000 Equals home equity dollar eighty thousand In this case the highest amount you could borrow would be eighty-five percent of eighty thousand dollar which is sixty-eight thousand dollar.
Check Your Credit Score It is always advisable to review your credit score and obtain credit reports before applying for a home equity loan. This is advantageous to you since you can be able to take time and look at your reports to ensure that there are no mistakes or take the necessary steps to enhance your score in case it is not good. A minimum credit score of between six hundred and twenty and six hundred and fifty is usually needed by most home equity loans or HELOCs but this varies from one lender to another. The higher the score, the better position you will have and therefore the lower interest rate that you will be able to qualify for.
Research Lenders There are various lenders offering home equity loans, and not all of them offer the same terms and interest rates. Take time to research various lenders that include the conventional banks, credit unions, and even the online lenders. There is the aspect of interest rates, fees charged, amount of loans provided, payment options, early payout options, and credit score. It is advisable to consult with various lenders so that you can secure the best deal on the loan. Choose fixed-rate loans if you want to avoid fluctuation of payments compared to variable-rate lines of credit which vary depending on the market.
Complete Loan Application Once you have shortlisted some lenders, you can go ahead and fill in the loan forms with your preferred lenders. Make sure that you answer all the questions that are asked on the application to the fullest, specifically in relation to income, employment, assets, debts, credit history, property taxes, homeowners insurance, and mortgage information. Getting your papers right the first time helps quicken the process and approval of your application. Finally, most lenders nowadays also let you upload documents directly online or through a smartphone app to make paperwork easier.
Get Appraisal If Needed When considering your home equity loan, the value of your home is also evaluated in order to establish the maximum loan amount you are eligible for. At times, they may be willing to take the value that you give from the most recent property tax return. At other times, they may conduct an appraisal and send someone to your home to assess it before giving you a professional market value. The total expense of the appraisal might be paid by the lender, or they might include it as part of closing costs which are then charged to you or might be included in the closing costs charged to you. If an appraisal is required, make sure that you or any of your occupants will be available to let the appraiser in.
Receive and Review Loan Estimate A loan estimate is an estimate of the loan offer in terms of amount of the loan, interest rate, monthly payments, cash required to be brought to closing, and other charges involved in the origination of the loan. When lenders provide you with loan estimates, compare each offer in detail comparing the clauses one to the other. If there is anything that you did not understand regarding the fees or charges, please feel free to raise questions to the lenders. Before signing an agreement, it is crucial to familiarize oneself with certain concepts, such as prepayment penalties and the loan closing period.
Sign Documents and Disclosure Forms After choosing a particular lender and loan program, you will have to formally accept the loan estimate offer. This includes the signing of the last loan disclosure documents that gives the legal information of the loan terms and conditions. Some of these documents include the loan commitment letter, Promissory Note, Deed of Trust, Right of Rescission, and Truth-in-Lending Disclosure. Always read these documents word by word before signing so that you do not develop an erroneous understanding of your legal responsibilities. Also, do not hesitate to inquire about any parts of the document that may feel unclear or lacking information.
Complete Closing Process The closing or settlement process often occurs at a title insurer’s or an escrow company’s office. You will have to pay the remaining down payment or closing cost by cash, cashier check, or wire transfer depending on your final Closing Disclosure statement. The final paperwork with large stacks of signatures are signed and the loan amount is then either transferred to your bank account or used to pay off your other balances. After closing, the lender will record the appropriate documents for the property title and provide you with information regarding the first loan payment, which is due thirty to forty-five days after closing. Do not forget to check the dates so that you do not pay after the due date and attract penalties.
Equity available in home is a convenient way to access funds required to pay off high interest debts, make home improvements, purchase major items and others. By following the detailed guideline provided in this article, you will be on the right track in selecting the right home equity loan offer that will not trap you in deeper personal financial compromise. Do not jump into the bandwagon of borrowing against your home without weighing the advantages and disadvantages. This is the reason why it is advisable to engage in proper research, planning, and monitoring of payments when tapping your homes equity.
