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If you need cash and own your home, obtaining a home equity loan is a viable option. Many people use these proceeds to make improvements to their homes, consolidate other forms of higher-interest debt, or fund college tuition.

Do You Know What a Home Equity Loan Is?

When you buy a home, you’ll likely have a mortgage. As you make payments, your balance goes down. Your equity is the difference between your home’s current market value and the outstanding balance. If your home’s value rises after you buy it, the amount of equity available rises also.

With these loans, you borrow against the equity in your home, using it as collateral. However, lenders may not allow you to borrow the total amount; many won’t let your total loan-to-value ratio go above 85%. Your LTV includes your first mortgage and equity loan, sometimes known as a second mortgage.

You don’t have to have an existing mortgage to get a home equity loan. If you own your home’s title, you can still apply for one.


Why Do People Choose a Home Equity Loan?

Because your home represents significant collateral, the interest rate you’ll pay on a home equity loan is substantially less than what you’d pay using personal loans, credit cards, or other forms of unsecured debt. You can also deduct the interest you pay on this type of loan in some cases when tax time rolls around. Other advantages include:

  • Potentially larger loan amounts than you could get otherwise, depending on how much equity you have
  • Fixed interest rate
  • Equal monthly payments
  • Set term
  • Usually fast and easy to obtain

There are a few cons to consider as well:

  • There’s a risk of becoming underwater if the value of your home decreases, meaning that you owe more than your home is worth.
  • You face the risk of foreclosure if you’re unable to make the monthly payments.
  • Rising interest rates mean higher payments.
  • You’ll have to repay the loan when you sell your home if you haven't already paid it in full.

If you’re comfortable with the disadvantages and need a lump sum of cash, a home equity loan may be right for you.

Can You Use a Home Equity Loan for Anything?

Lenders usually don’t have restrictions on how you can use the funds from a home equity loan. However, some experts advise that you shouldn’t use the proceeds for certain things:

  • Buying cryptocurrency
  • Daily expenses
  • Gambling
  • Loans to friends or family
  • Stock market purchases
  • Vacations

Some of these expenditures are risky because you can’t guarantee that you won’t lose the money. Others might satisfy a short-term desire, but you’re risking your home if you’re unable to make the monthly payments.


Do You Qualify for a Home Equity Loan?

As with any type of loan, each lender has requirements you must meet to receive funding for a home equity loan. These can differ, but generally, you need to have a:

  • Minimum of 15% to 20% equity
  • Credit score of at least 680
  • Steady and sufficient income
  • Maximum of 43% debt-to-income ratio
  • History of on-time payments in your credit history

Another factor is the amount of equity you have in your home. Lenders typically require an appraisal to ensure that your home’s current value is high enough to make offering you a loan is a good investment for them.


What Should You Look For When Comparing Home Equity Loan Quotes?

It’s a good idea to compare financial products from multiple lenders to ensure you find the best loan for your situation. When you’re considering loans from different lenders, look at:

  • Fees
  • Closing costs
  • Points
  • Interest rates
  • Credit insurance requirements
  • Balloon payments
  • Prepayment penalties
  • Repayment term

Remember that several factors can affect the interest rate and loan amount lenders offer, including your credit score and the amount of equity you have in your home.

How Can You Find Home Equity Loan Lenders?

You can wade through pages of lenders, each claiming to be the best. However, you won’t always be sure you’re dealing with legitimate companies. When it comes to your personal finances, you need to find reputable and reliable resources.

Consider using instead. This company connects you with local, professional lenders at no cost to you. You can get multiple quotes, but you’re not obligated to accept any of them. Using is a risk-free, easy way to find the right home equity loan lender. If you have questions about this service, call (855) 224-5599 or send an email.


Have Any Questions?

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