How Can I Get A Home Equity Loan?

Home equity loan refers to a form of credit that enables homeowners to use the equity in their home. It is similar to a second mortgage, where a home is used as security for the financial product. By their very nature, home equity loans tend to be relatively inexpensive in terms of the interest rate that is charged to the borrower, which makes them a popular form of financing for homeowners who require cash. But how in fact can one be approved for one? Here are the stages that home equity loan goes through.

Learn About Home Equity Home equity is determined by the difference between the current market price of your home and the remaining balance on the mortgage. For instance, if your home is currently valued at 500,000 and you still have 200,000 on your first mortgage, your home equity will be a total of 300,000. This equity builds over time as you gradually pay for your mortgage and as your home rises in value. It can be used with a home equity loan or home equity line of credit, as an example.

Find out how much liquidity you require One of the first steps that you should take before considering a home equity loan transaction is to determine the precise amount of cash you require for refinancing. Bear in mind that the closing costs are usually between two and five percent of the total loan amount. Home equity loans enable you to borrow up to eighty five percent of the available equity in your home. Plug the numbers into the formula to determine the most possible loan amount that you can attain while keeping within the above limit.

Check Your Credit Score Credit is very important when it comes to the eligibility and approval of home equity loan rates. Check your credit score and report credit histories at Experian, TransUnion and Equifax to get better insights. This involves reducing current obligations, settling any credit complications and ensuring minimal credit card utilization in the months preceding the application. It is thus important to note that any credit score above 720 will give you the prime borrower rates.

Compare Lenders Before taking an online payday loan, conduct your research and compare interest rates and fees from several lenders. Banks, credit unions, and online lenders are examples of places to look for them. Some questions that one should ask potential lenders include; engaging with the potential lenders and learning as much as possible on the whole process, the closing cost and prepayment penalties, credit score requirements for the loan and the terms of the loan offered. The payoff schedules can take as short as five years and as long as thirty years depending on the financier and therefore one must be clear on the expected number of years.

Continue with the Home Equity Loan Application When you have chosen your lender, you can apply for a home equity loan through their formal application. It is important to be ready to present a lot of financial documents like tax returns, pay stubs, mortgage statements and details about assets and liabilities. Your lender will also arrange for an appraisal to establish the current market value of your home and ensure you have adequate collateral to offer against the mortgage.

Get Preapproved In any application, most of the lenders will issue a preapproval letter stating that you qualify for a home equity loan based on initial underwriting. This enables one prove his/her eligibility and this gives one leverage especially when bargaining for the terms and conditions of the loan. Communicate with your lender if they require you to submit any other documents for the final approval of your loan.

Undergo Full Underwriting Once you get preapproval, the underwriters will do a deeper analysis of your financials before approving the loan. They will check all income sources, review your spending and credit history, credit-to-income ratios, and ask for proof of homeownership insurance. This full underwriting determines whether or not you are capable of making the payments on the loan in a comfortable manner.

Interest rate lock After complete underwriting approval, the lender will provide you with a loan estimate of all the details including the mortgage interest rate, payment schedule, origination charges, closing costs, and others. It is possible to select a fixed rate for the required amount of time, which usually ranges from sixty to ninety days, which will lock in the current rate, regardless of fluctuations in the market during that period. Getting your rate locked in early can lead to tremendous savings in interest over the life of the loan.

Sign Documents at Closing The final one is the closing appointment in which you have to read through the final loan documents and sign them. This includes such documents as legal papers that put down the home equity loan that is secured with your property. They are normally available on the closing date or within a couple of days after closing. You can then use that cash for your intended purposes whether paying off debts or consolidating, home renovation or for acquiring assets.

Although it takes some time and effort though, a home equity loan enables a homeowner to obtain funding needed for any purpose using the home’s hard earned equity at a reasonable rate. By following these steps you will be able to determine if a home equity loan is right for you, how to find the right lender, navigate the application process and finally get approved to tap into one of your largest sources of wealth – your home.