Let’s face it – not everyone lives with a silver spoon on their mouth. When you have lots of home improvement plans in mind but have other financial obligations to fulfill, you might not have enough funds to cover for the bills. So, what can you do to start your dream home renovation finally?
Homeowners have five options to choose from. You can use your credit card for minor fixes, apply for a personal loan, a mortgage refinance or just save up enough cash. However, there is another way that can solve your problem. You can apply for a Home Equity Loan and once approved, you’ll get to enjoy your equity in cash.
But before you start looking for a mortgage lender to get a Home Equity Loan, here are some things you need to know.
Consider the two types of Home Equity Loans
Home Equity Loans have two types – the Home Equity Line Of Credit and the Cash Out Refinance. If you want a lump sum of cash for your equity, go for a Cash Out Refinance. If you wish to keep it in your account and only draw some money at your convenience, a HELOC will work for you.
The rules vary in every state
Texas Home Equity Loans Rules has a different structure from other states. There maximum LTV or Loan-To-Value is usually up to 80% only for residential properties. When it comes to investment properties, it will be a case to case basis. There are also tax rules so make sure to talk to your mortgage lender or broker to learn more about this in your area.
There are three things you need to have to qualify
Lenders have different requirements as they offer different terms, conditions, and rates. However, they will surely ask for the following:
- An appraisal the lets your lender determine how much equity you have in your home
- A favorable credit score and a good credit report
- A Debt-To-Income Ratio of below 50%
There are four best ways of using your equity
Funding home improvement projects that can add up value to your home is an excellent way to use your equity. You can also use it to cover for emergency expenses, consolidate debt and even to support investment properties. However, if your primary goal is to finance expensive buys with no ROI or to pay for extravagant recreations and travels, then it’s best to think twice before using your home equity.
Good Read: Here’s how to tap your home equity safely
The advantages and disadvantages of a Home Equity Loan
Getting a home equity loans means you’ll have to undergo the whole mortgage process and provide necessary financial documents that prove you have enough equity and is capable of paying off the loan. Getting a home loan means you’re subjected to significant debt and fees, but on the bright side, you get to fund your dream home improvement project with a loan with low rates, high amount of cash and with potential tax benefits.