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Home Equity loans offer homeowners a smart financial alternative, empowering them to borrow money based on the available equity in their home. This can be a more cost-effective solution compared to personal loans and credit cards, putting you in control of your finances. Mortgage lenders typically offer two main types of home equity loans: A home equity loan and a home equity line of credit (HELOC).
Home equity loans, considered second mortgages that are secured by your property, offer a high degree of flexibility. They are popular because they do not require you to refinance your first mortgage, which is especially important if you are content with your current interest rate and payment. You can use the funds from our home’s equity for whatever you want, including home improvements or any other major expense, giving you a sense of financial freedom. Plus, home equity loans typically have a lower interest rate than credit cards and personal loans, making you financially savvy and in control of your finances.
The loan amount is based on the difference between your home’s current market value and the amount you owe on your mortgage. Getting approved for a home equity loan requires you to have a minimum of 20% equity in your home. Typically, the maximum amount you can borrow is 80% of your home’s equity availability, but that depends on the lender’s requirements.
For example:
Consider a home valued at $350,000 with a $100,000 mortgage.
$350,000[home value] x 80% = $280,000
$280,000 - $100,000 [outstanding loan balance] = $180,000 [available equity]
According to Zillow, the average Dallas home market value is $319,020. Which is up 2.7% in the past 1 year. Depending on your market, the average home value plays a big role in the appraisal of your home value.
If you have decided that a home equity loan will improve your financial position now and, in the future, it's time to start looking for good home equity loan rates. To choose a loan package that will work best for you, it's important to understand some basics of home equity rates and have a few prepared questions to ask your mortgage lender.
Interest rates on home equity loans, just like mortgage loans, can change based on market conditions, so the rate you get will depend on when you apply. Home equity loans typically have lower rates compared to other types of loans because they use your home as collateral. Remember that interest rates differ between lenders, so it's important to compare rates from different lenders to find the best option.
The application process is different for every lender, but generally, these are the typical steps that you will follow:
Like other financial products, home equity loans have potential advantages and disadvantages. Let’s examine some of these to help you make a more informed decision.
Shopping, applying for, and getting a mortgage loan is a complicated process, and there are many potential missteps borrowers can take along the way. Be sure to avoid the following four pitfalls when you apply for a home equity loan.
A home equity loan lets you borrow against the equity you’ve built in your home, possibly with more favorable terms than a more traditional loan. It’s important, however, to remember that you are borrowing against the equity you’ve built in your home and that failure to repay your home equity loan may have implications for your ownership. Speak with a qualified home lending professional to learn more about how a home equity loan might prove valuable to you.
At America’s Credit Union, our experienced and knowledgeable mortgage lenders work with members to help them determine whether a home equity loan is right for them.
With our personalized home mortgage loan approval approach, we offer flexible loan terms, low closing costs, no prepayment penalty or fees, and competitive home equity loan rates. Also, we serve all our loans in-house, meaning you can continue visiting the same Credit Union location and working with the same lender and member service representative throughout your loan.
We encourage you to visit a mortgage lender at America’s CU to find out what is needed for a home equity loan and learn more about applying today.
Banking with America’s Credit Union in Dallas, Texas, opens opportunities to improve your financial journey today and in the future.