There are a few benefits of home equity loans that you should know about. First, they’re a great way to get access to a large sum of money at once. This can be helpful if you need to make a big purchase or pay off some high-interest debt.
Another benefit of home equity loans is that they can be a great way to consolidate high-interest debt. For example, if you have several credit cards with different interest rates that are accruing daily or monthly, getting one loan might help you pay off all of your debts faster since they’ll all have the same low-interest rate attached to them.
In addition, home equity loans can offer excellent savings opportunities. For example, if you have a high-interest credit card and don’t want to pay off your total purchase right away, getting an interest rate discount can help you save money in the long run by letting you defer payment for longer.
On top of all that, home equity loans are easy to qualify for compared to a first mortgage. Sometimes, you don’t even need to have a good credit score or any collateral on hand to receive funding.
What is a Home Equity Loan and How Does it Work?
A home equity loan is a second mortgage that you take out on the value of your house. The interest rates are typically lower than other loans. It’s less risky to lend money against property versus just lending them cash with nothing to offer as collateral if they’re unable or unwilling to pay back what they owe.
Home equity loans are usually for a fixed amount, which you will then have a set period to pay back. You can use the money from the loan however you want- home improvements, paying off debt, and so forth.
How Do I know If I’m Eligible?
Not everyone is eligible for home equity loans. The most crucial factor is that your home equity- the difference between your house is worth and how much you still owe on it- must be high enough to cover the loan. It would be best if you also had a good credit score and a steady income.
What Are the Pros of Getting Home Equity Loans?
The biggest pro is that you can use it to buy or renovate your house. You won’t have to pay closing costs on this type of loan, another great advantage. Another pro is that you can use it to buy other things. For example, if you want to take a vacation or go shopping for some new clothes but don’t have the cash on hand right now, getting an equity loan could help.
How Much of Your Home Equity can You Borrow?
You can borrow up to 80-85% of your home equity. The actual amount you’re able to borrow will depend on a few factors, like your credit score and the value of your home.
Does a Home Equity Loan Require an Appraisal?
Yes, most home equity loans require an appraisal, so there’s no question about how much your house is worth if you default on the loan.
How Long Does Home Equity Loan Process Take?
Depending on how quickly you get your paperwork in order and the lender processes it, it can take anywhere from one week to months.
Below, you’ll find a list of the top five lenders we think will be around and offer excellent home equity loan rates in 2023. We have selected these companies based on their history, current offerings, popularity with customers, and more to give you an idea of who might be your best option for getting a loan in the future.
Now that you know a little more about home equity loans, let’s look at some of the top lenders in this category:
- Bank of America
- Wells Fargo
- Quicken Loans
- SoFi
- LendingClub
The first lender is Bank of America. They offer both fixed and variable rate loans, and you can borrow up to 80% of your home’s value. The minimum amount you can borrow is $100,000. To qualify for a loan with Bank of America, you need to have an excellent credit score and work full-time in the U.S.; it’s also vital that you’ve been living in your current home for at least a year.
Wells Fargo Home Equity Loans
Another primary lender is Wells Fargo. They offer both fixed and variable rate loans, and the minimum amount you can borrow is $30,000. To qualify for a loan with Wells Fargo, you need to have an excellent credit score and work full-time in the U.S.
It’s also essential that you’ve been living in your current home for at least a year and have kept up with any taxes or homeowners’ association fees, as well as other bills like credit cards.
Quicken Loans
There are still options available for those looking to refinance their homes- just not quite as many. You can get refinancing through Quicken Loans, for example. They offer both fixed and variable rate loans, and the minimum amount you can borrow is $50,000. As with other lenders, you’ll need to have a good credit score and be working full-time to qualify.
SoFi Loans
If you’re interested in home equity loans but don’t want to go through a bank, other options are available. One example is SoFi. They don’t offer fixed-rate loans, but they have variable rates that start as low as Prime + 0.99%. You can borrow up to $100,000 with SoFi, and you don’t need to have an excellent credit score or be working full-time to qualify.
LendingClub Loans
The last lender on our list is LendingClub. They offer both fixed and variable rate loans, and you can borrow up to $100,000. To qualify for a loan with LendingClub, you need to have an excellent credit score and be working full time in the U.S.; it’s also crucial that you’ve been living in your current home for at least a year.
Home Equity Loans vs. Second Mortgage: Which is Better?
With home equity loans and second mortgages, there are a few things you need to know to make the best decision for your situation. First, what’s the difference between these two types of loans? A home equity loan is when you borrow money against the value of your home- you’re using your house as collateral.
A second mortgage is when you borrow money against the equity you’ve built up in your home – the difference between what your house is worth and how much you still owe on it.
Weigh the Options
Both loans have pros and cons, so it’s important to weigh them carefully before deciding which one is right for you. For example, home equity loans might be a good option if you need a large sum of money and want to lock in a low-interest rate.
A second mortgage might be a better option if you want lower monthly payments. However, if you don’t need a large amount of money right away and can afford the higher interest rate of a home equity loan, it might be better to go that route instead.
Determine Your Needs
People decide whether to take out a home equity loan or second mortgage for many reasons- it all comes down to what you need and want. You must weigh these options against each other carefully to make an informed decision based on your unique situation.
Calculating Home Equity
Home equity is the difference between how much you owe your home and it’s worth. Divide your total mortgage debt by your house’s current market value to calculate this. Your lender uses this number to determine whether you qualify for a loan – if the ratio of what you owe versus what it’s worth falls within specific parameters, you’re likely to be approved.
For example, if you owe $100,000 on your home and it’s worth $200,000 on the market, your home equity would be 50%. This means that you could borrow up to 50% of your home’s value in a loan without having to worry about being denied.
Home Equity Loan Explained in 4 Steps
Your Homes Appraised Value; To get the most accurate report for your home’s value, you will need to have an appraisal done or contact your local real estate agent. You can also find out how much your home is worth on Zillow, Trulia, and other websites that are similar.
Determine Your Equity; To figure this number out, subtract the total amount of liens from the homes appraised value and divide that by the homes appraised value.
Calculate Your Debt—To-Income Ratio; This calculation is done with your income and monthly debt payments. You will need to include items such as car loans, student loan bills, credit cards, etc… The number you get from this step should be less than 36%.
Have A Decent Credit Score; Home equity lenders like to see a credit score of 620 or higher. If your credit score is not as high as you would like it to be, there are ways that you can improve it before applying for a loan.
One way is to get a copy of your credit score and look for any errors that may be bringing your number down. You can also work on paying off debt, which will improve your Debt-To-Income Ratio.
How Can I Build Equity in My Home to Maximize My Cash-out?
You can take a few steps to maximize your equity and get the most out of refinancing. First, try to pay off all high-interest debt, especially credit cards. This will help lower your monthly payments so that they’re more manageable while also giving yourself an emergency fund for unexpected home repairs or other expenses.
Second, make extra payments on your mortgage. If you can afford to send in an additional $100 or $200 each month, you’ll shave years off of your loan and save yourself a lot of money in the long run.
Finally, keep track of your home’s value. As your home equity increases, you’ll be able to borrow more money in a home equity loan. So, if you know your house is likely to appreciate shortly, it might be worth waiting to refinance until then.
