Do you Qualify for a Home Equity Loan?

Most homeowners have "equity" in their homes.  Home equity is the value of your home less the amount of your mortgage.  Even if you purchased your home just 2-5 years ago, it is likely that you have a nice amount of cash equity value. 

This equity can be accessible to you through a home equity loan.  This type of loan carries a reasonable partaking rate for most homeowners and is routinely payable over 5-15 years.  In some instances, large equity loans may carry terms similar to a first mortgage on your home.  This cash amount, if used at all, should be used wisely by the homeowner.

That said, this cash value available to you may be used for costs of education, for a once in a lifetime vacation, for upgrades or additions to your home or to pay off high having a part rate credit cards.  When you obtain a home equity loan, the money is yours to use as you see fit.  Just remember that it is a loan - and it is a levy on your residence. 

This type of loan is much simpler to obtain than a first mortgage but there are some pitfalls to avoid.  Ensure that there is no prepayment penalty attached to the home equity loan so that you may pay it off early if you desire or should you sell your home.  Also, you should be aware that defaulting on this type of loan can have severe consequences.   If you are accessing a significant amount of equity, it is almost certain that this will be considered by lenders as a second mortgage and thus will carry a cross-default clause.  That simply means that defaulting on this loan will cause your first mortgage to be in default.

For that reason, you should not consider taking out an equity loan unless you are reasonably certain you will be able to repay it in a timely way.  If you are struggling to pay tuition for your son or daughter's college education or if you need major repair on your home, using the equity you have built up is an excellent way to provide additional funds when you need them.

Many homeowners carry an equity line of credit on their home just to use for unexpected expenses or repairs.  They can draw on the credit line when they need to replace a major appliance or air conditioning way or need to cover an expense for a short period of time. Meantime this type of use feels like using money from your checking or savings account (and many time you will just write a check to access the equity line), remember that you are paying response on the money as it is, in reality, a loan.

If you have gainful employment and have a responsible record of payment on your current mortgage, you should have no problem at all obtaining a home equity loan.  Even if your credit has some blemishes on it, this type of loan may well be accessible to you.

Gideon Dow

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