Do you Qualify for a Home Equity Loan?
If you own your home chances are you have built up a
certain amount of equity. Your home equity is the value of your home,
normally determined by an appraisal, minus the amount currently due on
your mortgage. Even a home purchased only 2 to 5 years ago has
appreciated enough to have a considerable amount of equity built up.
You can access this equity by getting a home equity loan. These loans
normally carry a good interest rate and can have a payment plan that
lasts from 5 to 15 years. In many cases a large home equity loan will
have terms that are much like those of a first mortgage on your home.
This can be a large cash amount that needs to be used wisely by the
homeowner.
This cash value can be used for a variety of purposes including paying
for college, maybe a once in a lifetime vacation, to upgrade or remodel
you home or to pay off outstanding balances on high interest credit
cards. Once you get the money for your home equity loan you can use that
money for whatever you wish. Do remember that it is a loan that is
guaranteed against the value of you current home.
Once you have a first mortgage it is much easier to get a home equity
loan. The process of obtaining the loan is much easier and quicker then
getting that initial mortgage on your dream home. That being said there
are some pitfalls that you should be on the look out for. Make sure
there is no pre-payment penalty on your prospective home equity loan
that may come back and bite your wallet if you want to pay off the loan
early. You also need to be aware that if you default on a home equity
loan there can be irreversible consequences. If the loan is large enough
most lenders will consider it to be a second mortgage that carries a
cross-default clause. A cross-default clause means that if you default
on this second mortgage you will also default on your first mortgage and
your home will go into foreclosure.
Because of the chance of losing your home a home equity loan should not
be taken lightly. You must be certain that you will be able to make that
monthly payment to repay the loan on time. Your home equity is best used
when there is a need for a large amount of money quickly, such as paying
for college tuition or for a major repair to your home.
For many homeowners an equity line of credit is the perfect choice when
the encounter unexpected financial problems or need to do emergency
repairs. Instead of getting a lump cash sum an equity line of credit is
an account they can tap into any time they need extra money. The nice
thing about this type of home equity loan is that you only pay interest
on the money your have used, not on the full loan amount.
If you currently have a good job and have been keeping current with your
first mortgage payments it should be rather easy to successfully apply
for and receive a home equity loan. Even with less then perfect credit
many lenders are willing to work with you to help you obtain the home
equity loan that will work best for you. |
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