What to Consider Before Getting Home Equity Loans
If you are incurring large or unexpected financial expenses, you can utilize the equity in your home to pay for these costs. Home equity loans are a popular method to get large sums of money for relatively lower rates of interests. These loans are generally helpful to the borrower but these benefits can vary for different situations. There are many aspects you should consider before you apply for loans based on your home equity.
How much equity do you have?
Evaluating the equity in your home is the most important step in getting approved for a home equity loan. Most banks have a minimum limit for equity and if your home does not have enough equity, you cannot get the loan. If your home does have enough equity, lenders generally offer up to 80%-90% of your home's equity.
Where you can use it
Another important step in getting your loan approved is the intended use. Home equity loans cannot be used for any other purpose. Specifying the purpose of the loan and veritable proof are essentials during the approval process.
When approved, these funds can be used towards home renovations, refinancing mortgages, consolidating debts for credit cards, purchasing real estate or vehicles, investing in mutual funds and shares, and to pay for college education.
Credit score and how to improve it
Your credit score is a telltale sign of how you manage your funds, expenses and debts. If you have suffered a bad credit score for any reason, chances of getting your loan approved are lowered. Poor credit score may also limit the benefits gained by the loan. You could be charged with higher interest rates or receive less funding for the same home.
Whom to approach
Although you may suffer from bad credit score, you can approach other options. Well known banks, lenders and other financial institutions are becoming stricter about lending policies. This makes it increasingly difficult for people with bad credit scores to get a loan. If renowned banks and lenders have not approved your home equity loans, you can approach secondary lenders. However, even secondary lenders are taking a stricter approach to their lending policies.
Another option for you is to approach private lenders. Despite the negative connotation associated with private lenders, finding the right source can prove to be beneficial. Most private lenders ask for equity value in your home only. As long as your home holds adequate equity, these lenders will provide irrespective of your credit score.
Proof required for the loan
There are several documents you need to provide as proof to complete the process. In addition to the regular proof of identity, you should also provide a statement of advice from an accountant or a financial planner if you are planning to purchasing shares. If you intend to purchase real estate with the loan, you should produce a letter from the conveyancer or present a copy of the sales contract.
If you are looking to consolidate your credit card funds, you should provide recent statements of your credit card account. If you are planning renovations around your home, you should produce quotes and plans provided by the contractor as proof for home equity loans.
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