As there are prerequisites for this kind of loan, it is important to be aware of them so that you do not face difficulty in obtaining the loan. These include your credit history, how long you have lived in the house, and other requirements that vary from loan office to loan office. It is important to educate yourself on this process before you start.
Basically a home equity loan means that you are taking out a loan based on the value of your home minus any remaining mortgage payments that are still due. For example, if your home is valued at $100,000, and your credit limit is set at 75%, then you can borrow up to $75,000 of the home value. Of course, if you have a mortgage, then the balance due on the mortgage will be subtracted first. Say this amount is -$40,000. That means your total home equity loan will be $35,000. A home equity loan without equity allows you to borrow above that $35,000 amount.
Prerequisites for the Loan
Naturally, there are definite prerequisites that must be met so that you qualify for home equity loans. These generally have to do with your history of credit. More specific prerequisites will vary from loan office to loan office and it is a good idea to get familiar with these. One thing for sure is that your credit history will be closely scrutinized so it is important that all of your payment history and paperwork are in tiptop shape before applying.
Not only will your credit history decide whether you qualify for the loan but it will also determine how much you can borrow and your payment plan. Usually, the loan money will not be released to you in one lump sum. Instead it will usually come to you in a number of smaller deposits.
As mentioned, the prerequisites will vary and some loan offices may expect you to have lived a certain length of time in your home before being eligible for a home equity loan. This, of course, depends on the loan office as well as your credit history. The length of time required will also vary between loan offices; generally, the usual length of residence required is two months.
One thing to consider when making your home loan application is the appraisal process. However, if you have recently purchased your property or have gotten a mortgage on it, loan offices will usually go with that appraisal as real estate values are generally pretty stable in the short term. This is especially true if you purchased your home or gotten a mortgage in the last year.
Ideal Way to Cover Remodeling Costs
Home equity loans without equity are ideal for covering remodeling costs. It is possible to get all the funds you need to cover remodeling costs with a home loan that is known as a 125% home equity loan. Another advantage is that these types of loans are available without high interest rates.
Now that you know whether or not you can obtain a home equity loan without actual equity, you can be more aware of your financial options where loans are concerned.