Exactly What Are Home Equity Loans?
January 19th, 2011 | 
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A home equity loan is a special type of loan for homeowners. They can take advantage of all the payments they have made over the years. It is not for people who have just purchased a new home, as there is no equity built up in the short amount of time. However, if payments have been made on a mortgage for several years then equity has built up.
Equity is the paid of portion of your mortgage. In other words, if you originally obtained a loan for your house for $150,000 and have paid on it for twenty years, you may only owe $60,000. The other $90,000 is considered equity. You may get a loan against the equity that has built up and use the house itself as collateral.
Usually these loans are at a much smaller interest rate than original mortgages or other loans. This means the payments will also be smaller. Most of the time a home equity loan is used for remodeling projects or some form of home improvements. They may be used to build another room or make major repairs. However, one of the advantages to a home equity loan is that it can be used on anything. There is nothing stipulating that it must be used on the house or property.
Lending facilities will be looking for several things when you go in to apply for a loan. Since you are borrowing money they will first look at your personal credit rating. Most of the time they will want an upper level credit rating, usually about 650. They will also want so sort of documentation proving where you are employed and how much you make. Your credit record will have to be free of anything that makes you a high risk borrower such as bankruptcies or foreclosures.
Because this is a loan using the house as collateral, you will have to have had ownership of the house for some amount of time. It will have to be a long enough time to have built up some equity. The loan will also need to use your primary residence as collateral. Rental property is excluded.
Also remember to read all of the fine print before signing any paperwork. There can be a lot of hidden fees. Many times they are added onto the final bubble payment. Under some circumstances many of the fees associated with a home equity loan may be waived.
Posted in Home Equity | 
Tags: Collateral Loans, Foreclosures, High Risk, Home Equity Loans, Home Improvements, Mortgages Loans, Rental Property, Twenty Years