Getting a home equity loan is considered to be quite a feat for a lot of people because of perpetuated common myths about home equity loans. Don’t forget that other factors such as being self-employed or having a less than stellar credit history can be a deal breaker with some lenders. So, how true is it that getting a home equity loan is difficult?
Not Difficult Once You Understand How it Works
People are interested to get a home equity loan because it is a way to tap home equity and access some cash. Although it is commonly believed to be the same as a HELOC owing to HELOC standing for home equity line of credit; however, the main thing that they both are is that they are ways to turn home equity into spendable cash.
A home equity loan allows homeowners to borrow a large sum of money against their home equity – allowing them to use it for home improvements, paying for college, consolidating debt, or buying a second property.
Because a substantial amount of money involved, there is no guarantee of pre-approval for a home equity loan. Lenders have a process and set criteria regarding who they loan money to so foreclosures are very rare, especially in Ontario.
Getting a Home Equity Loan the Easy Way
Big lenders (such as the biggest banks in Canada) have strict lending rules. This is the reason why it is easier to get a home equity loan from private lenders with the help of mortgage brokers. You’ll also have to understand that you need to have a certain percentage of equity built up in your home certified by your financial records and an appraiser.
Know that despite being less strict, private lenders have to protect their own interests too which means that your ability to pay and your stability are big factors to consider. This can be demonstrated by having a good loan-to-value ratio as well as having a debt-to-income ratio of around 43% to 49%. A credit score of around 300-900 also shows that you have the ability to pay bills on time with those having a minimum of 650-680 getting a better chance of being approved.
Generally speaking, as long as you haven’t taken too much debt, have a passable credit history, have a verifiable source of income, and considering that your home’s value have not dropped, getting a home equity loan isn’t really the challenge it was made out to be. The answer is going for private lenders instead of banks.
Private Lender for Home Equity Loan?
Private lenders take a more ‘human’ approach before saying no to someone who wants to take a loan. They’ll look into why your credit score isn’t up to par and will understand that small business owners tend to not have certain requirements (such as a payslip). A less than stellar credit score is not a hindrance as long as you are cooperative with the other requirements and provided that you’ve contacted the right lender.