You get access to a large amount of money at one time when you acquire a home equity loan. You get to repay the loan’s interest and principal on a monthly basis. You can obtain a home equity loan using the equity in your home and using the funds to go home improvement or paying off a student loan. This type of loan is considered a second mortgage. Be sure that you are able to afford paying for your first mortgage and other monthly expenses before applying for a second mortgage.
There are various requirements for obtaining a home equity loan. For one, an appraisal has to be done so the equity in the home can be appropriated to your new loan. The equity in your home must be at least fifteen percent and as much as twenty percent. When you apply for this loan, you must have a credit score that equals to 620 or more. Your debt to income ratio must be no more than forty three percent or lower. Of course, you would still need to provide the basic documentation such as valid ID, income proof, bank statements and tax return.
The Borrowing Amount
With a home equity loan, you are allowed to borrow up to eighty five percent of the value of your home subtracted from the amount that you own on the current mortgage. You can calculate this to see how much you would be qualified for. You should be aware that the use of your home as collateral comes with risks, but there are more pros than cons as long as you are fiscal responsible.
With a home equity loan, you get a fixed rate, which means that your monthly payments are predictable and makes it easier to budget. The interest rate is usually lower and if you use the home equity loan to do home renovations or improvement, you could list the interest as a deductible on your tax return.