Introduction Home equity loan or second mortgage is a kind of home loan that enables homeowners to borrow money based on the current market value of the home minus the balance of the primary mortgage. Home equity loans offer a chance to borrow a large amount of money with relatively low, compared to other types of loans, interest rates. The loan amount is derived from the equity, a sum reached by the difference between the current value of your home and the remaining balance on your mortgage. Home equity loans are a effective financial tool for those homeowners who need to consolidate the high interest debt, to finance the home improvement or other large expenditure such as college tuition. The information that will be reviewed in this article will act as a home equity loan application guide.
Determine If You Qualify It is important to check if you meet the requirements for getting a home equity loan before applying. The eligibility requirements include:
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You must own your home: For a lender to be willing to offer you a loan, it means you need to have equity in your home. You need to have enough equity in your property. It is advisable to have at least 15-20 percent equity but some lenders may grant loan facilities to owners with as low as 5-10 percent equity.
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You must have sufficient equity: It is the lenders’ guarantee that no matter the time you are unable to pay back the loan, they can sell the house and recover their money. Therefore they lend only upto a percentage of your equity. Generally you can get a loan for between 80-90 percent of the home’s value.
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You must have good credit score: To the lender home equity loan is still debt so be prepared to have your credit history scrutinized before the loan is approved. When it comes to credit score, getting anything above 700 guarantees fast approval and better deals. If the score is below 680, it is advised to work on increasing it before applying for the scholarship.
Calculate Your Home Equity After this, find out how much equity you have on your home to establish how much loan you qualify for. To calculate:
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Establish your home's current market value: Log into an online estimator such as Zillow or Redfin and view how much your house can be sold for in the current market. If you do not agree with the appraisal then you can request for an appraisal.
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Determine your unpaid mortgage principal: Find out how much you still need to pay for your current home loan. Check your account statement or contact your lender to determine how much more you are required to pay before clearing your mortgage.
- Minus the amount that is due from the projected value of the property. The difference is your equity. It is however important to remember that only a percentage of this equity can be borrowed as lenders place a reserve in the event that home prices come down. From the above criteria of lending up to 80% of the equity, estimate the maximum loan that you can be granted.
Compare Lenders It is therefore important that one understands that not all home equity loans and terms are the same. Invest time to compare various lenders in order to identify the most suitable loan that will suit your needs. Compare based on:
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Interest rates: Interest rates also differ between lenders and may be fixed or floating. Fixed are the same for the entire term of the loan, while variable rates change making your monthly payments and totals uncertain.
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Fees: Some of the usual fees includes application or origination fee, appraisal cost, credit check fee, or any other fee charged by the lender. It is therefore advisable to look beyond the contract interest rates.
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Loan repayment terms: Most home equity loans have terms of their repayment that falls from five to thirty years. Feel free to select from among the timelines that you are most comfortable with.
- Prepayment penalties: There are some lenders who will charge you extra fees in case you repay the loan early or in case of making any additional payments. Try to find loans that don’t come with many penalties.
After getting quotes from different lenders it is easy to identify the one which offers the lowest rates and favorable payment plan.
Submit a Loan Application When you discover a lender with the most suitable home equity loan that fits your needs, then you should follow the formal application procedure. Typical documents needed include:
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House details: Since house equity holds the loan, the firms will need your latest mortgage statement reflecting your payment record, original amount borrowed, interest rate and the number of years on the loan. SUBMIT copy of property deed and recent appraisal if any.
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Income proof: Proof of income and its source will be required. Salaried applicants might provide the last 2 years W2s or tax returns for veracity. Freelancers for instance may be required to provide their bank statements as well as their business profit and loss statements. They can present retirement account statements, social security documents, and any other proof of income.
- Assets evidence: Expect to produce checks and slips for two months of your checking, saving and retirement accounts. Bring copies of bank or brokerage account statements.
Identity and residency verification: The passport and other original identification such as driver’s license will also be required, and proof of current address, usually in the form of utility bills.
Please use the following checklist to improve your overall odds of being approved quickly and for having a complete application profile:
Expect Home Equity Loan Approval Loan approval may therefore take anything between 2 days and a few weeks depending on the lender and the extent of the required documentation. If the decision is going to take long do not hesitate to call and check the status. When the loan application is approved, the lender will offer necessary legal documents that outline the loan agreement with specific details. One should also carefully look at the small prints before agreeing to the loan terms as stated in the loan contract.
That sums up the process of getting a home equity loan and the stages that are followed. This is how it should be done, and then do plenty of research to ensure that one gets the right loan at the lowest rates possible so that one can save thousands over the life of such a loan. Offers an understanding that home equity loans help homeowners to access funds for the purchase of other essential requirements that are costly while at the same time being able to foster the creation of long term wealth through homeownership.
