| Home equity loans have become increasingly popular | | | | This is due to the increased likelihood of defaulting. |
| in the past few years. With property values rising, | | | | Underwriters prefer applicants with better credit and |
| more people have realized the benefits. They allow | | | | more assets than they do with applicants purchasing |
| you to borrow a certain amount of money, using your | | | | their primary residence. |
| home's equity as collateral. Collateral is property | | | | What if my income is too difficult to determine? |
| offered to a lender as security for the loan. It gives the | | | | If you have difficulty providing all the income |
| lender a guarantee that you will repay the debt, | | | | documents necessary for the loan, you can apply |
| because if you did not, the lender could sell your | | | | under special loan programs such as stated income, |
| property to get the money they lent you back. Equity | | | | "no doc" or "low-doc." Applicants who are |
| is the difference between how much the home is | | | | self-employed or commission-based use them often. |
| currently worth and how much is owed on your | | | | People who do not want to share their financial history |
| mortgage. Home equity loans may seem complicated | | | | and complicated tax returns with a lender fall into this |
| but they are actually quite simple. You just need to | | | | category as well. |
| understand a few terms and concepts. | | | | Can you refinance your mortgage with a home equity |
| What is a Home Equity Loan? | | | | loan? |
| A home equity loan is a second loan on your property | | | | If the interest rate or mortgage payment on any |
| that gives you money based on the amount of equity | | | | property is too high, a home equity loan is also a good |
| in your property. You can spend it on anything you | | | | way to refinance your existing mortgage loan, take |
| want. Most people use it for home improvements, debt | | | | some additional cash and make one easy monthly |
| consolidation, college educations, vacations or car | | | | payment ("Home Equity FAQs"). Refinancing is the |
| purchases. The interest that you pay on your home | | | | process of adding a new first mortgage to replace an |
| equity loan is typically tax deductible-and that is a huge | | | | existing first mortgage and any other liens you may |
| benefit to this loan. Consult your tax advisor regarding | | | | have. There are two ways to refinance: no cash-out |
| the deductibility of home equity loan interest. | | | | and cash back. No Cash-Out refinancing reduces your |
| What's the difference between Home Equity Loans | | | | monthly mortgage payment and the remaining term of |
| and Lines of Credit? | | | | your loan. It can help you save thousands of dollars in |
| There are two ways a lender can loan you money | | | | interest. Cash back refinancing allows you to borrow |
| based on your home's equity. First is a home equity | | | | money in excess of what you currently owed on your |
| loan which is based on a set loan amount, and second | | | | mortgage. You still reduce your interest rate and term, |
| is a home equity line of credit, also known as a | | | | but you also get a hold of the money you earned |
| HELOC, which is a revolving line of credit. Both are | | | | when your property's value increased. Cash back |
| referred to as second mortgages, because they are | | | | refinancing is a smart decision if you have future |
| secured by your property, behind your first mortgage. | | | | expenses that will need financing. If you need a new |
| With home equity loans, you apply for a set loan | | | | car, you could take an additional $30,000 and add that |
| amount and pay it down based on a fixed interest | | | | amount to your loan. The interest rates will likely be |
| rate. The maximum amount of money that can be | | | | lower than your credit cards or car loan, and again, the |
| borrowed is determined by several variables such as | | | | interest you pay can be tax-deductible. |
| your credit history (FICO score), income, first mortgage | | | | Refinancing with a home equity loan is similar to |
| and the recent appraised value of the collateral | | | | refinancing with a traditional mortgage. The main |
| property. | | | | difference is that equity loans are typically repaid in a |
| How much can they loan to me? | | | | shorter time than first mortgages. Traditional |
| The relationship between your loan amount and your | | | | mortgages are usually repaid over 30 years. Equity |
| home's appraised value is called the "loan-to-value" | | | | loans often have a 15-year repayment period, although |
| ratio, or "LTV". As LTVs increase, the interest rate of | | | | it might be as short as five or as long as 30 years |
| the loan in question usually increases as well. ("Home | | | | ("Home Equity Credit Lines"). |
| Equity FAQs"). The maximum amount the lender loans | | | | Now that you are familiar with some basic home |
| is partially determined by this ratio. The maximum LTV | | | | equity loan terms and concepts, the process should |
| varies per lender. Note that if the LTV is too high, it | | | | seem straightforward. When you need money, |
| could affect your approval, interest rate or conditions | | | | obtaining a home equity loan not only simplifies your life, |
| due to the increased risk for the lender. | | | | it also saves you money. It gives you piece of mind |
| Can I get an equity loan on my rental property? | | | | through the fixed low interest rate and low monthly |
| Home equity loans can be taken out on primary | | | | payments. The process only takes several days and |
| residences, second homes, investment properties and | | | | the funds are transferred into your bank account upon |
| vacation homes. However, each property has individual | | | | the loan's closing. It is as easy as pie. |
| conditions for approval. It is also more difficult to qualify. | | | | |