Thousands of people borrow money using home equity in any given month, but not a lot of people truly understand what it means and how to do it. For instance, plenty of homeowners are not aware that borrowing money using home equity has a higher chance of approval versus applying for other types of loans. Read on below and find out more!
How Much Is Your Home Equity?
You can estimate a calculation of your home equity before going to a lender to borrow money. Basically, your home equity is the value of your home that you currently own. You can estimate it by subtracting your remaining mortgage balance from the current market value of your home. This means that the higher your home’s market value and the more you paid for your mortgage’s balance, the higher is the value of your home equity. A large home equity can help you qualify for loans faster, including sizable loans.
Note that your own estimate is just to give you an idea how much your home equity is. You will need a professional appraisal done to apply for loans. You need information that are as complete and as updated as possible because you will have to provide these details to the lender when applying for a home equity loan.
Applying for a Home Equity Loan
Getting a home equity loan starts with applying for it from a lender. The loan will be based on your perceived ability to pay and the value of your home equity. You can get any of the following home equity loans if you meet the requirements for home equity:
- You can get a Mortgage Refinance by renegotiating your contract with your lender or by breaking your first mortgage contract. A penalty will have to be paid but you will gain access to up to 80% of your home equity. For someone with a big expense and want to take advantage of better interest rates, a Mortgage Refinance may be a smart option.
- You can apply for a HELOC or a home equity line of credit. This will allow you to tap 65% to 80% of your home equity either in one go or via small amounts over a set span of time. A HELOC will also allow you to reborrow or withdraw from your line as you pay the minimum billed to you. Interest rate for a HELOC is lower than other second mortgages and you’ll also enjoy a lot of flexibility in terms of when and how much of your home equity to use.
- You can consider getting a Second Mortgage to use on top of your primary mortgage. The downside is that you will have to be capable of paying off two mortgages at once but could be a good choice if you have a sudden need for a substantial lump sum of cash.
Remember that applying for a home equity loan means using the value that you own in your home as collateral. Your home will be at risk if you fail to pay. If you need help deciding which option is best for you to borrow money using home equity, feel free to contact us so that our mortgage professionals can answers your queries.