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Three Facts to Know About Home Equity Loans

By Michele Lerner
Mortgage Credit Problems Columnist


While decreasing home values around the country have caused a drop in home equity for many homeowners, those who purchased their homes a long time ago or who made a large down payment may still have significant equity. All lenders will review the credit report and debt-to-income ratios of loan applicants, regardless of whether they need a bad credit mortgage loan or have good credit, but homeowners with extensive equity have a better chance of qualifying for home equity loans or bad credit mortgage refinancing.

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Enter your information on this page to find out if you qualify for the lowest rates on home equity loans.

Before you choose a home equity loan, be sure you understand the following information about your loan:

  1. Most lenders approve a home equity loan based on a maximum percentage of the home value, typically 80 percent. So, for example, if your home appraises at $100,000, 80% of the appraised value is $80,000. If you owe $50,000 on your mortgage, the maximum potential line of credit you could borrow would be $30,000.
  2. After determining the maximum line of credit, mortgage lenders will evaluate your ability to repay the loan. In many cases, lenders have even higher standards for credit scores and debt-to-income ratios on a home equity loan because those loans will be second in line for repayment if the owner defaults. Bad credit mortgage lenders may be willing to approve a home equity loan, but they will likely charge a higher interest rate than other lenders for the loan. Even so, the interest rate could be lower than the rate charged for other debt.
  3. You can use a home equity loan to pay off high interest debts and therefore reduce monthly expenses and improve your credit score. The interest on a home equity loan is often tax deductible, unlike credit card or auto loan interest payments.

Homeowners with 20 percent or more equity in their property should complete the form on this page to check on the lowest rates for home loans with bad credit. The more equity you have available, the stronger your chances are for qualifying for a home equity loan and revamping your monthly budget.

Sources:

http://www.federalreserve.gov

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