Equity Loan Basics

March 25, 2009 by  
Filed under Equity Loans

Equity loans are low risk loans because there is collateral involved, hence, the low interest.

Often, people use their homes as equity to secure financing for various purposes. Be it for long term functions such as home improvement, buying a car, or for short-term needs such as a vacation or medical emergencies, applying for an equity loan can be relatively fast and easy.

The most important step in applying for an equity loan is ensuring an accurate valuation of your property. The value of the property will, to a large extent, determine the amount you can take out on a loan. Normally, a clean property with no liens will get an equivalent home equity loan amount of 80% of its appraised value. Thus, a property appraised at $1,000,000 will allow the borrower to take out as much as $800,000. Generally, companies will have their own appraisers visit your property. The appraiser will look at the general condition of the house and the neighborhood. Prevailing market value of adjacent properties will have a big influence on the valuation of your property. You can get the services of a professional agent to help you evaluate your property so that you can be reasonably assured you are getting the best home equity loan available.

When you apply for a home equity loan, the lending company may run a credit history check on you. A history of bad credit can seriously affect your eligibility to secure an equity loan or the lending company could charge you with relatively higher interest if you are considered a high risk borrower. As such, it is always best to maintain a good credit standing to increase your leverage in financial matters.

Deciding on how much to take out on a home equity loan should be done with a great deal of restraint. Often, people are tempted to take the maximum loanable amount offered by the lending company. However, remeber that this is a loan and you will be paying for it for some time. As such, you should be very careful and ensure that the repayment scheme is something you can manage.

Resist the urge to binge on high end materials for your home improvement. Always bear in mind that the new Jacuzzi will not pay for itself. Exercise caution because, although an equity loan can give you a windfall of ready cash, it can leave you homeless as well. Remember that the lending company will not think twice of foreclosing your property should you default on your payments.

When getting an equity loan, bear in mind that you are putting a lien on your property. As such, you will need to commit on ensuring that you will be able to pay off the loan in time. Be sure to make an informed decision because your future and that of your family can be severely affected by an equity loan gone bad.

Whether you are looking for home equity loan line of credit, the lowest home equity loan, or debt consolidation home equity loan – there is a service that is available for you!