Guide to Home Equity Loans Chapter: 1 2 3 4 5
Funding a Home Equity Loan
You've made it through winding trails of information, past the family tree, and you're ready to drive on the road to funding. Here are some pit stops on the way to your final destination-having cash in hand.
Loan Amount
You probably know how much money you need, but you may not know how much you can get. Lenders will calculate your equity, but they generally won't lend you that entire amount. (Remember that LTV definition from Chapter 2?) It's just too risky for a bank to lend you 100 percent of your home's value. A better guideline is to calculate 80 percent of your home's value, and subtract your first mortgage balance. The answer will be something close to what you can obtain from a home equity lender at the lowest interest rate possible.
Application process
Once you apply for a home equity loan (HELOC), lenders will carefully review your income, your employment status, your credit history, and the value of your home. This information is used to assess how risky you are as a borrower. The riskier you are, the more expensive your interest rate will be. It's also possible to have a no-documentation or low-documentation loan, but lenders have been tightening their belts on these products as of late, and they're becoming harder to come by.
Closing costs
Costs associated with obtaining your second mortgage may include fees for the appraisal, application, title search, and other closing services. If you have excellent credit, some lenders will waive these expenses completely. Ask all prospective lenders for a written statement of estimated closing costs. These figures have been known to change at the last minute, so prepare you by asking the lender how such changes are handled.
Home equity debt can be an extraordinarily powerful financial resource; but it isn't right for everyone. If you choose your path from a position of knowledge, you're already heading in the right direction, and can enjoy the process as much as a smooth Sunday drive in the country.
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