Generally speaking, when it comes to using the equity built up in their house, people understand that it's an option to tap into that equity to get cash they need. However, before going forward with a home equity loan it's good to understand how it works. So, let's take a look at the basics of the home equity loan and how it works.
A home equity loan is when homeowners borrow against the equity they have built in their home. It's pretty straight forward. However, unlike traditional mortgages, there are some things to keep in mind.
When it comes to home equity loans, your home's equity is used as one of the key factors to determine how much you can borrow. So what is your equity? To find out what your equity is, first you determine the value of your home and how much you owe on your mortgage. Then you take difference. It's that simple.
Let's look at an example:
A man named Barry owns a house valued at $250,000. Barry still owes $200,000 on the mortgage. His equity would be $50,000. This number is used to help determine what your loan would look like.
Other factors that are considered when determining the loan amount and terms are credit reports, payment history, and income. It's also important to remember that homeowners are allowed to borrow a certain percentage of their equity. Here at Visions Federal Credit Union you can borrow up to 90% (appraised value - first mortgage) up to $250,000. Less than 80% equity allows you to borrow up to $500,000.
If you are interested in getting a home equity loan, have questions, or want to know what home equity loan options are right for you, please contact us today.