Home Equity Loan
What Is A Home Equity Loan?
A home equity loan is a loan that involves the homeowner using their home equity to acquire a loan. The home serves as collateral, which means the home can have a lien placed on it in the event the borrower defaults on it.
The amount a homeowner can take out depends on what the lender determines the value of the home to be. Generally speaking, the more the home is worth, the more money the homeowner can borrow.
It's important to note that when a loan is taken out, then the home's equity becomes less.
What Is A Home Equity Line Of Credit?
Don't confuse an equity loan with a home equity line of credit. A line of credit allows a homeowner to borrow only what they need, and they can borrow several times from the line of credit. In the early years, borrowers can make small payments, but eventually they have to pay full payments that will ultimately pay the entire loan off.
Who Needs One?
People who need funds to payoff major expenses are often the ones who need a home equity loan. These major expenses can include making home repairs or renovating a house. Some people take out an equity loan, repair or renovate their homes and then they put their house on the market. Other people get a home equity loan to pay for medical bills or to pay their college education.
The bottom line is anyone who owns a home or is a landlord may eventually need a loan. Instead of turning to traditional loans, they may want to explore a home equity loan. It is a good way to acquire funds to pay for just about anything.
How to Get One
The first thing a person needs to do is find a lender. It's a good idea to apply for a home equity loan or home equity line of credit with several lenders. Different loans from different lenders will come with different interest rates, payment options and so forth. Shopping around for a loan is the best way to find the best lender.
After applying, the lenders will check to see how much your home is worth and they will likely run a credit check. Having good credit is often a requirement that prospective borrowers have to meet if they want to be approved for a loan or a line of credit. However, those with bad credit might have a good chance of getting approved if their home is worth quite a bit.
In short, people find a lender and then they fill out an application. They wait to hear back and then they receive their funds if they are approved.
Tips & Advice
First, people should always compare at least 3-4 lenders if they want the best interest rates. Also, if they don't get approved for a home equity loan, they should see if they can get approved for a home equity line of credit. Another tip is to try to improve credit before applying. Those with good credit tend to get the best interest rates.
Those are a few common tips that most people know about. However, they are extremely useful, so keep them in mind when the time comes to apply for a home equity loan.