Home Equity Loan Funding
Now you've read up on home equity mortgage loans and are ready to begin the journey through the funding process. Here is a guide that will help you through the various stops along the way.
Amount of the Loan
Most borrowers of home equity mortgage loans have a pretty good idea of how much money they need, but they are clueless about how much they can actually get. To determine this, your lender will calculate your home equity, but they typically will not lend you the full amount because it is far too risky. A good rule of thumb to get an accurate estimate of how large of a home equity loan you can get is to take 80% of your home's appraised value, then subtract any outstanding debts against the house. This will be the best estimate of the size of the home equity mortgage loan you actually get.
Finding a Lender
Rates can vary considerably among lenders, so make sure you shop around before you commit to a loan. Most lenders, including banks, credit unions, and independent online lenders, offer home equity mortgage loans. To find the best deal, you should get at least three or four quotes on home equity loans from a variety of lenders. You can do this in one fell swoop on our site, as we present you with at least four quotes at the same time.
Applying
After you apply for a home equity mortgage loan or HELOC, your lender will look into your income, credit history, employment status, and the appraised value of your home. All of this information is used to evaluate how much of a risk you are as a borrower. The bigger the risk you represent to your lender, the higher the interest rates will be on your home equity loan. Remember that unless you have perfect credit, you can't always assume you will qualify for the lowest interest rate possible. Some lenders offer home equity mortgages called "low-documentation" or "no-documentation" loans, which means the application paperwork is either drastically reduced or eliminated. However, these products have become increasingly rare of late because of the hard times lenders are facing.
Closing Costs
Typical costs associated with home equity mortgage loans include appraisal fees, application fees, title search, insurance costs, and other services provided at closing. You should save up a few thousand dollars to prepare for these costs. For borrowers with flawless credit, a lender might waive these fees entirely. Don't let the closing costs of a home equity loan take you by surprise-ask your lender for a written good-faith estimate of closing costs when you apply. Sometimes, the costs associated with closing change at the last minute, so you should also ask your lender they handle sudden changes late in the game.
For more questions you may have, see if they have been answered in our frequently asked questions.
