Getting a home equity loan is not a decision that can be taken lightly. As a type of second mortgage, applying for a home equity loan means borrowing against your home equity or getting a loan with your home as the collateral. Inability to pay back the loan can mean losing one’s home.
How to Get a Home Equity Loan
Because you will be borrowing against the home equity of your house, the first step is to have an idea of your home equity’s value. You can estimate your home equity by subtracting existing balances from the current estimated market value of your home. You can expect to access as much as 80% of your home equity if you’re approved but note that your application will be based on a professional appraisal of your house’s market value, your loan to income ratio, and other factors.
Pros of Home Equity Loans
There are many positives in getting this type of second mortgage. The interest charged for your loan can often be claimed as a tax deduction. You will also end up paying less in interest compared to other loans such as credit card debt and personal loan because this loan is secured by your home. If you have poor credit, you can still qualify for a home equity loan and get a substantial amount of money too, a lot more than if you choose a personal loan or a business loan. Perhaps the best aspect of this type of second mortgage is getting a lump sum of money once approved. For people who are good at managing their finances and planning how to use cash, a lump sum can offer the extra control that they might need.
Cons of Home Equity Loans
The biggest negative aspect of this type of second mortgage is a high risk of losing your home if you fail to repay according to the terms. Another con is needing to pay off immediately if selling the home and having to pay closing costs once approved. The loan will have to be paid off with fixed monthly payments as well that usually come with a fixed interest rate. In comparison with a HELOC that is more flexible, typically comes with a variable interest rate, and usually paid off later, a home equity loan can be difficult to manage for some people.
Applying for a Home Equity Loan
Before you apply with a lender, it is wise to compare the terms, estimates, and rates of a minimum of three lenders. You can try getting quotes from a broker, a bank, and a private lender to see which will be more beneficial for you. Note that applying for a home equity loan is not a one-day process. It can take several days for the money to be made available to you from the date of application because your requirements will have to be processed first, assessed, and approved. Starting with complete requirements will make the process significantly faster.
Overall, the pros and cons of home equity loans should not stop you from applying for one. If you meet the requirements and can find a lender with payment terms that you can manage, a home equity loan should work for you. We’ll be happy to assist get you approved for a home equity loan at Homebase Mortgages. Contact us at your earliest convenience.