Need Help Understanding Home Equity Loans?
Understanding home equity loans can be a bit confusing. A home equity loan is essentially a one-time consumer loan using your home as collateral. Generally, people use home equity loans to finance major expenses and milestones in their lives, such as home renovation projects or consolidating high interest debt (such as credit cards). If your home is worth more than you owe on it, you have equity, and may be able to use this equity to borrow money. According to ATTOM Data Solutions, as of September 2020, four out of ten mortgaged homes in Pinellas County (Florida) were worth at least 50 percent more than what the owners owed on the loans.
Here are a few helpful tips to help you understand home equity loans and if they are right for you.
HOME EQUITY LOANS: PROS AND CONS
Home equity loans or home equity line of credit (HELOC) are similar to a traditional mortgage. You will pay interest on the loan, and there are risks associated with taking equity out of your house. The loan will put a lien on your property and will place your home at risk if you cannot repay the loan. If you have a pressing financial need, it could make sense to accept those risks but be sure you know exactly what you are getting into and be confident that you have the ability to repay the loan.
One of the main benefits of taking out a home equity loan is that you can use the funds however you want. Also, since you’re using your home as collateral, interest rates tend to be much lower than those of unsecured debt, like personal loans and credit cards. Although it might be tempting, do not feel you need to take the maximum loan amount offered. Consider your ability to pay the loan back comfortably without over-extending yourself.
WHERE CAN YOU GET THEM?
You can apply for a home equity loan through multiple channels, all of which have their pros and cons regarding the type of assistance they offer, fees, discounts, terms, and interest rates.
● Banks
● Credit Unions
● Online Lenders
On-line lenders will be the future of lending as well as banking. No need to go to a brick-and-mortar location. No need to sit in front of a bank representative in a cubicle office only to be shamed with a loan denial.
When you do apply for a home equity loan, keep in mind, you will need to qualify just as you would a traditional mortgage. There are five things lenders usually look at: your combined loan-to-value ratio (CLTV), debt-to-income ratio (DTI), credit score, available equity and proof of income. And besides checking your CLTV, DTI, available equity and credit score, there are a few other things experts recommend you do, prior to applying for a home equity loan, such as:
Having a good idea of what your home is worth
Having tax returns, W-2s and/or 1099s handy for documentation
Not opening or closing any accounts just before applying for a loan
Ultimately, whether a home equity loan is right for you will come down to your personal financial situation, how much equity you have in your home, and what you would like to use it for. You want to treat a home-equity loan with the same seriousness you would a regular mortgage. That is the most important thing of all to know.
To read more about loans to access your home’s equity, read Money Magazine’s Best 5 Home Equity Loans of 2021. To find out more about Figure Lending, mentioned in the Money Magazine article, and its totally on-line, no-hassle loan process, click on the ASK ANNETTE. Leave your contact information with the message “Tell me more about Figure” in the subject line and I will be happy to share my personal experience with this on-line lender.
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