Home Equity Loan

A home equity loan is a loan against the equity in your home. Equity is the difference between the amount of money you owe on your home and the current market value. There are many types of home equity loans. Banks are competing fiercely for your business. It is best to shop around to see where you can get the best deal. There are many things to look at when thinking about a home equity loan.




The first thing you need to do is decide why you want the loan. Is it for home improvement, debt consolidation, to purchase another property, to purchase something else -- like a car, boat or motorcycle? Perhaps you are looking for more of a home equity line of credit that will enable you to borrow money by writing a check. Now that you know why you need the money, you need to really look at how much you need to borrow. If you are going to use the money for home improvement, get a few estimates and borrow 10% more than the highest estimate. This will be your cushion for those unexpected surprises (like termites, plumbing and electric, etc.) If it is for anything else, remember boats and cars have title and taxes, real estate has inspections and other fees. Be sure that you have a good idea of how much you need.




Now that you know how much money you need to borrow, its time to figure out if you have enough equity in your home. Add up all the outstanding mortgages, liens and loans against your home. Then find out how much your home is worth. Most cities have the tax and real estate records online. Go to these and look up what houses on your street have sold for recently. Be sure they are similar to your home. This will give you an estimate of your home’s worth. Now subtract what you owe from what your home is worth. This is your home’s equity. Most banks will only let you borrow up to 80% of the value of your home. Some will allow you to borrow up to 125% of the value of your home. (Be very careful with this option). So, if you have enough equity, you should be able to get a home equity loan. Let’s look at some fictitious numbers. Let’s say you owe $100,000.00 on your home. The current vale of your home is about $200,000.00. You have $100,000.00 in equity. Using the normal standards, (80%) you should be able to borrow up to $160,000. You have $100,000.00 in equity. Most banks will let you take out a home equity loan for an amount up to $160,000.00 providing you meet their credit worthiness criteria. Looking at the other option of 125%, you could borrow up to $250,000.00. This carries some serious ramifications if your property does not appreciate to $250,000.00 and you want to sell it before you pay off the loan. Be careful with this option.




So, now you have all of the information you need to get a home equity loan. You have determined what the loan will be for. You know how much equity you have and about how much you will be able to borrow. Now, show me the money! Where do you get a loan? You can try calling on local banks, they are offering pretty good deals to those with good credit. You can try the banks you have deposits and other loans with. They know you. You can go online and check out many banks and deals in a short amount of time.




Now you know about how to borrow money using the equity in your home. Shop around for the best deal. This is very important because getting the best rate will save you a lot of money. No matter where you decide to get your home equity loan from, be sure to make your payments on time!