A home equity loan is one of the most common tools for leveraging the value of real estate. If you're not sure about home equity lending, it's a good idea to learn a bit about it before you borrow. Here is what you should know about home equity as a financial tool.
What Is a Home Equity Loan?
Your house is one of the most valuable assets you have. It functions as a store of wealth, but that leads to the question of how to access that store of wealth. For instance, even if you still have payments to make on a mortgage, you may be able to access some of that value. A home equity loan program allows you to access money from the difference between your house's value and what you have left to pay on it. If your house is worth $350,000, for example, and you have $150,000 left to pay, the available equity would be the $200,000 difference.
How Is Equity Determined?
The bank offering the loan will send a professional to assess the property. Working from the condition of the house, the current market, and recent tax assessments, they'll determine what the property is worth. Likewise, they'll decide how much risk there is with the volatility of the market, and they'll determine how much they're willing to lend you.
Why Take a Loan?
One of the most common arguments for using home equity is to maintain or improve the property. If you have a 30-year loan and have lived at the house for 20 years, there's a good chance it may have some wear and tear. You can use the loan money to fix the roof, remodel the kitchen, upgrade the plumbing, or anything else that strikes you as important.
Notably, you can also use the equity for other purposes. Perhaps the house is still in great condition, but you want to buy a new vehicle. The equity in your home may provide you access to a better and more stable interest rate than you might get with an auto loan.
Generally, you'll need to have solid credit to take out a home equity loan. The upside, though, is that those with equity in their homes have usually been paying mortgages for several years to a couple of decades. However, the bank will perform a credit check. That will influence the interest rate they offer, especially if you want to use a large portion of the equity.
Contact a home equity lending service for more einformaitno.