When someone is talking about a home equity loan, they are usually referring to what we call in some circles, the second mortgage. These loans are very popular vehicles for home improvements, remodels, or cash for one reason or another and are an easy way to get to and use the equity you have built up in your home.
When looking into a second mortgage, you want to be aware that your credit score will have a lot to do with the amount of money that one can borrow. The higher the credit score is, the higher the loan to value of the loan can be. With a high score in the seven hundreds, you may be able to get up to 85%, in the high six hundreds you may only qualify for up to 80%.
One of the biggest obstacles for people is the amount of loan compared to the value of the home. Most second mortgages will only go to 80% of the value of the home. In this shaky economy today, you will not find many lenders that are willing to loan more than that amount no matter what your credit score.
If your home value is 250,000.00 and the amount on your first mortgage balance is 150,000.00, you will be allowed to borrow an amount equal or less than 80%. In this case you can borrow a total of 200,000.00 or receive 50,000.00 less any and all fees and expenses involved in getting the loan.
There are two types of second mortgages that are popular today. There is the home equity that will allow you to pull out a certain amount of equity, as in the example above. The second type of equity loan is called the home equity line of credit.
With the Home Equity line of credit, you will receive a line of credit with the lender that has a limit equal to the maximum amount you can qualify for. This will come with a credit type card and will let you borrow as you need the money. This is very handy when you are doing repairs or remodels as you can easily see where and what the money was spent on. The other advantage is that you only pay interest on the outstanding balance of the loan.
Both these types of loans will have a higher interest rate than a traditional first. However, the better your credit is, just like with a first, the lower the interest rate will be. You can also find second mortgages with an adjustable rate if that is what you like.
Be sure and shop around as there are many different lenders that offer a wide variety of loan types and fee structures. By shopping, you will be able to find the loan that fits your exact needs.
No matter what your needs, you can find the money to meet them in a second mortgage. You can pay for a child’s college, buy a new car, or do some well needed repairs around the home. The payments will be very reasonable as the terms for the second mortgages are usually around fifteen years.
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