Whether you want to do home improvements, hope to consolidate debt, or have another reason for wanting to take out a loan, there are plenty of different types to consider. One common type of loan is the home equity loan.
Advantages and Disadvantages of Home Equity Loans
Like any type of loan, home equity loans Cleveland Ohio have advantages and disadvantages. On the plus side, they are a less expensive alternative to credit cards since they have lower interest rates. They are also tax-deductible in many cases, which means even more savings. Finally, home equity loans are faster and easier to close on than mortgages most of the time, making them a good option for people with a short timeline.
There are some disadvantages as well, though. Even though home equity loans are less expensive than credit cards, the interest rates are higher than those of mortgages. There is also a risk of foreclosure if you do not repay the loan according to the guidelines. Home equity loans can also be difficult to qualify for.
Defining Home Equity and How Much You Need
Home equity is the difference between your home’s current value and the balance of your mortgage. If you want to apply for a home equity loan, you’ll need to know how much equity you have. Luckily, you can calculate it.
First, you’ll need to estimate your home’s value. A website such as Zillow can give you an idea, but if you want exact numbers, you’ll need to pay for a full appraisal. Next, you’ll need to contact your mortgage provider to find out what your loan balance is. Now it’s time to do the math. Imagine your home is worth $400,000 and you still have $200,000 to pay on your loan. That means you have $200,000 in equity.
Applying for a Home Equity Loan
Applying for a home equity loan is similar to applying for a mortgage. You’ll have to submit a credit check, provide proof of income, and show proof of your current mortgage balance and home value. Some lenders also require you to pay for a full appraisal and a title search.
Getting approved for a home equity loan can be difficult, but there are a few things you can do to try to raise your chances of approval. Before you apply for the loan, check your credit report with at least one of the major credit bureaus. You’ll need a score of at least 720 for most lenders, so do what you can to fix any mistakes and to pay down any debt that may be lowering your score.
If your home has signs of construction around it, or worse, if it looks like it needs major repairs, you’ll have a lower home value. Fix the roof, repair windows, and powerwash or repaint your home to raise its value. Keep in mind that lenders often take pictures from the street, so be sure your front lawn looks presentable as well.
If you decide that a home equity loan is right for you, be sure to work with a reputable lender. Look for an established lender that is licensed, willing to answer your questions, and has a favorable reputation among borrowers.