What is a home equity loan and how does it work? Home Equity Loan is also known as a second mortgage or equity loan and it is a loan that enables homeowners to borrow against the equity in the home. The loan comes in two forms – home equity lines of credit and fixed rates loans. home equity loan gives you access to a large sum of the amount at once.
However, the loan amount is based on the difference between the mortgage balance due and the home’s current market value. The home equity loans have fixed interest rates because your home serves as collateral. And any failure to make payments, the lender might take the home and sell it out
Furthermore, a home equity loan is one of the best and good ways to change the equity in your home into money, most especially if you invest the loan in renovations, it will increase the value of your home. But always remember that your home is in line. Nevertheless, home equity loans are available at many banks, online lenders, and even credit unions.
Also, the loan you borrow depends on the equity you have. Do you want to apply for a home equity loan but you do not know how? All you need to do is follow this article to the end. That is because it will enlighten you more on home equity loans.
Pro & Cons of Home Equity Loan
Now, let’s talk about the advantages and the disadvantages of the loans. It will let us know the importance of the home equity loan. Below are the pro& cons of a home equity loan, check it out.
- It provides easy and quick source of cash.
- It is a very valuable tools for good and responsible borrowers.
- Home equity loan is a secured debt.
- It is a good option for people who want to use funds for home improvements.
- It has competitive interest rates which is very much lower than personal loan.
- Interest is tax deductible.
- Fixed monthly payments.
Cons
- Temptation to borrow more money you can actually pay at once
- Risk of losing home, if you cannot make payment before the period of time
- Longer funding timeline compared to the personal loans.
However, the disadvantages should not stop you from applying for the loan because it is one of the best ways to get approved for a loan
How to Apply for a Home Equity Loan
To apply for a home equity loan, you must prepare for a home equity application by calculating your equity, checking your credit score, and also knowing how much debt you owe. Lots of lenders let you start the process online by entering your financial and personal details. Below are the requirements and documents you need to apply for the home equity loan;
- Valuation or Appraisal of your home
- Evidence of ownership of the home
- Your Social Security Number
- Amount you pay in child alimony or child support
- Income history
- Employers contact details and employment history
- Your current mortgage statements
- Most recent pay stubs
- The last W-2 statements
- Your home insurance declaration page.
To apply all you need is to check out for lenders that give out the loans like your bank, credit unions, and online lenders. You may also pay for the loan application depending on the type of lenders you go for