Do you need some disposable funds? A home equity loan might be right for you. These types of loans allow you to borrow against some of the equity of your home while using the house itself as collateral to repay that loan. If the market value of your home is higher than what you owe, and you have a decent credit score, pulling cash from your property through a home equity line of credit might be a good option for you. The following are a few things to consider before taking out a second mortgage.

Check Your Credit First

Before you go through all the trouble of filing for a home equity loan, make sure your credit score is even eligible in the first place. If your credit is “poor” or “fair” you’ll be charged exorbitant interest for your loan. Likewise, if your debt load is already chewing up a big portion of your income, the bank lender will likely decline your request because you probably won’t be able to afford it.

Know Your Equity

Once you know you’re eligible for a home equity loan or line of credit, you’ll want to start crunching some numbers. You have equity in your home if it’s market value is higher than the balance on your mortgage. The next step is checking to see if you have enough equity in your home to go through the trouble of applying for a loan. The standard amount allowed by banks is 80% of the value of your home, minus the current mortgage amount.

2 Types of Loans

You should think of a home equity loan as a second mortgage. A fixed-rate home equity loan is when you take out the entire amount to intend to borrow then pay back the amount every month. Typically the loan period is anywhere between 5-15 years.

A HELOC, or home equity line of credit, works similarly to a credit card. A HELOC allows you to borrow up to a certain amount over a given period of time. You can choose to pay off the interest on the amount or pay down the principal, whichever is more convenient for you at the time.

Conclusion

 If you need some disposable income, a home equity loan or HELOC might be the right choice for you. If you have a decent credit score and a good amount of equity in your home, contact our team at American Mortgage Resource, Inc., we can help you navigate the loan process from start to finish.