The issue of home ownership is often hard to understand for quite a lot of people who’ve never applied for a home equity loan before. In this article we will tackle the common misconceptions and cover the basics of home equity loans. We hope that after reading this article, you will be better equipped on making an informed decision whether applying for a home equity loan is for you or not.
What Really is a Home Equity Loan?
A home equity loan which is also known as reverse mortgage, is a type of loan that allows a homeowner to use the equity they have built up. The equity is the value of the difference between the home’s current market value and any amount still owed. That equity can be used as collateral for a loan, which gives us home equity loan.
How To Get a Home Equity Loan
Applying for a home equity loan typically requires that the homeowner possess a good credit and a good ratio of combined loans to assets. This is because these factors can make the transaction a lot less risky for the lender who will provide the funds for a home equity loan.
The amount that can be tapped for a home equity loan will vary depending on several factors such as repayment goals, value of equity, location of property, current economic and real estate climate, and the lender’s terms.
Debunking Home Equity Loan Myths
Here are the reasons why these common home equity loan myths are really just myths:
- Pre-approval of a home equity loan does not guarantee that you will be fully approved. It is simply a screening step in the process.
- You also won’t have to use the money on the house. You can use it anyway you want as long as you pay in the end.
- Home equity loans are not expensive. The terms are often reasonable and will be discussed with you before you sign any papers.
- You will not lose your home if a spouse passes as long as you are a co-signatory for the loan. The house will go to the lenders if the owner or person who signed the loan passes or moves out.
- You also will not have to sign over ownership to the lender. Again, you are your home’s owner until you move out or pass away.
- It is possible to apply for a home equity loan even if you have an existing loan. It is just that any existing loans will be deducted from your equity.
- Your heirs will not end up paying more than what the home is worth as well because the debt cannot exceed the home’s value to begin with.
- Lastly, you will retain full ownership of your home and the lender cannot force you to move out.
The best and safest way to go about getting a home equity loan is to get the help of mortgage professionals who will connect you with the right lenders and help you avoid the possible pitfalls.