Home A Loan Mortgage, LLC
(404) 889-8411

"Is a Home Equity Loan Right For Me"

In this article, you'll learn what home equity loans are and how to qualify.
Feb 10, 2021

One of the most valuable benefits of owning a home is building equity. Whenever you need a considerable amount of cash, you can get it by borrowing against your equity with a home equity loan. How you use the funds is up to you. Some choose to remodel the kitchen. Others need it to pay off high-interest-rate credit card debt or medical bills.

Whatever your reasons are for needing a lump sum of additional cash, know that you have it available to you through the wealth stored in the value of your home. 

In this article, you'll learn what home equity loans are and how to qualify. 

All About Equity

Home equity is the difference between what you owe on the mortgage and how much the home is worth today. For example, if you owe $100,000 on your mortgage and your home is worth $250,000, you have $150,000 worth of equity. The first step to getting a home equity loan is to know if you have enough equity to borrow against.

All About Home Equity Loans

A home equity loan, sometimes called a second mortgage, is paid off with monthly payments, just like a primary mortgage. Lenders will usually set limits as to how much they'll approve you for. For instance, if you have $70,000 of equity, you might get approved for a maximum hoof $60,000.

You'll receive the funds in a single lump sum and pay it back (plus interest) over a predetermined number of years.

Pros And Cons Of Home Equity Loans

Advantages

Home equity loans have lower fixed interest rates than personal loans. Many find it useful to get the funds in a lump sum to get started on the project or pay off that debt ASAP.

Disadvantages

Since your home acts as collateral, if you're unable to pay back the loan, the lender could foreclose on your home.

Also, a home equity loan adds to your monthly debt and depending on how tight your budget is, a second monthly mortgage payment could prevent you from building up your savings.

Getting Approved For A Home Equity Loan

Getting a home equity loan is similar to getting approved for a primary mortgage. Your credit will be evaluated, as will your income and existing monthly payments – including what you pay on your current mortgage. 

As a general rule of thumb, if you want approval for a second mortgage, your debt should equal no more than 43% of your gross monthly income. You'll also need a minimum credit score (typically 620) and maintain at least 15-20% equity in your home.

Home Equity Loan Alternatives

Not sure if a home equity loan is what you need? Check out these alternatives:

Home Equity Lines Of Credit

A home equity line of credit (HELOC) acts like a credit card, with the credit limit based on the amount of your home equity. With a HELOC, you only pay back what you use.

For example, if you get approved for a HELOC of $60,000 but only use $25,000, you'll only make payments on $25,000 plus interest – not the full $60,000.

Cash-Out Refinance

With this option, you'll refinance your current home loan into one that has a higher balance than what you currently owe. You'll then receive the "extra money" in a lump sum to use however you want. 

For example, if your current loan is $120,000, you can refinance for a new mortgage with a balance of $160,000. You'd then receive the $40,000 difference as a single payment.

The main benefit of a cash-out refi is that you'll still have just one single mortgage payment a month. Plus, depending on your credit score, you might qualify for a lower interest rate.

We encourage you to get personalized answers to your home equity questions by contacting us today

PRIVACY POLICY

Customer service is very important to us. As we continue to improve and expand our services, we recognize our customers' need and desire to preserve their privacy and confidentiality. Safeguarding our customers' privacy is also very important to us. We have adopted standards that help maintain and preserve the confidentiality of customers' nonpublic personal information. The following Statement affirms our continued efforts to safeguard customer information.

Information We Collect

We gather nonpublic personal information about our customers as may be necessary to conduct business with our customers. We collect nonpublic personal information about you from the following sources:

  1. Information we receive from you on applications or other forms, over the telephone or in face-to-face meetings, and via the Internet. Examples of information we receive from you include your name, address, telephone number, social security number, credit history and other financial information.
  2. Information about your transactions with us or others. Examples of information relating to your transactions include payment histories, account balances and account activity.
  3. Information we receive from a consumer reporting agency. Examples of information from consumer reporting agencies include your credit score, credit reports and other information relating to your creditworthiness.
  4. From employers and others to verify information you have given to us. Examples of information provided by employers and others include verifications of employment, income or deposits.

Information We Disclose

Your personal information will only be retained for the purpose of providing you with our response to your query and will not be made available to any third party except as necessary to be disclosed to any related entity for the purpose intended or as required to be disclosed under law.

By submitting data on our website, the visitor is providing explicit consent to transmission of data collected on the website.

We treat data as confidential within our firm and require a strict adherence of all our employees to data protection and our confidentiality policies.

All visitors, however, should be aware that our website may contain links to other sites that are not governed by this or any other privacy statement.

We reserve the right to amend (that is, add to, delete or change) the terms of this Privacy Statement from time to time.