Do you Qualify for a Home Equity Loan?

If you own your home chances are you have built up a certain amount of equity. Your home equity is the value of your home, normally determined by an appraisal, minus the amount currently due on your mortgage. Even a home purchased only 2 to 5 years ago has appreciated enough to have a considerable amount of equity built up.

You can access this equity by getting a home equity loan. These loans normally carry a good interest rate and can have a payment plan that lasts from 5 to 15 years. In many cases a large home equity loan will have terms that are much like those of a first mortgage on your home. This can be a large cash amount that needs to be used wisely by the homeowner.

This cash value can be used for a variety of purposes including paying for college, maybe a once in a lifetime vacation, to upgrade or remodel you home or to pay off outstanding balances on high interest credit cards. Once you get the money for your home equity loan you can use that money for whatever you wish. Do remember that it is a loan that is guaranteed against the value of you current home.

Once you have a first mortgage it is much easier to get a home equity loan. The process of obtaining the loan is much easier and quicker then getting that initial mortgage on your dream home. That being said there are some pitfalls that you should be on the look out for. Make sure there is no pre-payment penalty on your prospective home equity loan that may come back and bite your wallet if you want to pay off the loan early. You also need to be aware that if you default on a home equity loan there can be irreversible consequences. If the loan is large enough most lenders will consider it to be a second mortgage that carries a cross-default clause. A cross-default clause means that if you default on this second mortgage you will also default on your first mortgage and your home will go into foreclosure.

Because of the chance of losing your home a home equity loan should not be taken lightly. You must be certain that you will be able to make that monthly payment to repay the loan on time. Your home equity is best used when there is a need for a large amount of money quickly, such as paying for college tuition or for a major repair to your home.

For many homeowners an equity line of credit is the perfect choice when the encounter unexpected financial problems or need to do emergency repairs. Instead of getting a lump cash sum an equity line of credit is an account they can tap into any time they need extra money. The nice thing about this type of home equity loan is that you only pay interest on the money your have used, not on the full loan amount.

If you currently have a good job and have been keeping current with your first mortgage payments it should be rather easy to successfully apply for and receive a home equity loan. Even with less then perfect credit many lenders are willing to work with you to help you obtain the home equity loan that will work best for you.