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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.
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.
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:
There are a few cons to consider as well:
If you’re comfortable with the disadvantages and need a lump sum of cash, a home equity loan may be right for you.
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:
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.
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:
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.
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.
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 Billy.com 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 Billy.com 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.