Many borrowers find themselves in a situation where they need to obtain a home equity loan. The term equity is sometimes used interchangeably with home equity loans, but it is the latter that is the more common term. A home equity loan is just what the name implies – a loan from your home that you put toward your home.
If you think of your home as a bank account and each account as having its own set of assets, then a home equity loan is like a deposit of assets for the borrower. The term home equity loan includes the amount you have borrowed, along with your down payment, taxes, title insurance, and closing costs.
If you need a home equity loan because you have some type of financial problem, you will need to provide documentation to support your story. If you want a second mortgage, for example, then you will need to demonstrate how much debt you currently have and how much money you can afford to pay each month on that debt. You also need to show proof that you will be able to pay your monthly payments.
To get approved for a home equity loan, you will need to have a job, proof of your Social Security number and a co-signer. A co-signer is someone who will co-sign on your mortgage. As a rule, anyone with good credit is a good candidate for a home equity loan. Anyone with bad credit, or who has defaulted on a loan previously, should consider applying to a non-traditional lender.
However, if you have a high credit score, it might still be wise to apply to a traditional lender. It’s a lot easier to be approved if you have a good credit score than if you have a low score. If you have good credit, you will usually get a lower interest rate than someone with bad credit.
Some federal agencies will approve loans based on your income and where you live. This means that a traditional lender will not approve a home equity loan if you live in Florida and are trying to obtain a loan in Virginia. So, it pays to shop around for a home equity loan.
You may be surprised at the amount of paperwork required to apply for a home equity loan. Your lender will require your financial information, as well as information about your property, as part of the application process.
Because you have a down payment and interest to pay, you will be expected to pay the lender on a monthly basis. Because you are borrowing money from them, it is necessary for them to protect their interest. In order to do this, your lender will charge you an origination fee.