Documents Required For Salaried Individual
- Loan Form: Bank loan application form to be filled with passport size photographs affixed
- Address Proof: Leave and License / Registered Rent Agreement / Utility Bill , Passport
- Identity Proof: Passport / Driving License / Voter ID / PAN
- Income Proof: 3 month payslips, 2 years Form 16, Copy of Income Tax PAN
- Bank Statement: 6 months bank statement that shows salary from the employer and any EMI paid for outstanding debit.
How To Get A Home Equity Loan
Youll generally be eligible for a home equity loan or HELOC if:
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You have at least 20% equity in your home, as determined by an appraisal.
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Your debt-to-income ratio is between 43% and 50%, depending on the lender.
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Your credit score is at least 620.
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Your credit history shows that you pay your bills on time.
» MORE:Five ways to get the best home equity loan rates
Can I Shop Around For Better Terms And Cheaper Closing Costs
Definitely. It is best to shop around and compare lenders as well as things like terms and rates, Kumar says. Furthermore, if you refinance, your closing costs will often be less. Lastly, before applying for home equity financing, if you work to increase your credit score, you can qualify for better terms, including lower closing costs. Overall, it is always in your best interest to research the available options before deciding which is best for you and your family.
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How Do I Qualify For A Home Equity Loan
Generally speaking, lenders will require you to have at least an 80% loan-to-value ratio remaining after the home equity loan in order to be approved. That means youll need to own more than 20% of your home before you can even qualify for a home equity loan.
If you have a $250,000 home, youd need at least 30% equity a mortgage loan balance of no more than $175,000 in order to qualify for a $25,000 home equity loan or line of credit.
When Is A Heloc Better Than A Home Equity Loan
A HELOC is a better option than a home equity loan if:
- You need a revolving credit line to borrow from and pay down variable expenses.
- You want a credit line available for future emergencies but don’t need cash now.
- You are deliberate in your spending and can control impulse spending and a variable budget.
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How To Apply For A Home Equity Loan
There are certain home equity loan requirements you must meet before you can apply for a loan. For better chances of being approved for a loan, follow these five steps:
If you need a loan to help cover upcoming expenses, make sure youre prepared. Check out our Loan Learning Center for more resources on the different types of loans available.
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Note: Its important to remember that interest rates, fees, and terms for credit cards, loans, and other financial products frequently change. As a result, rates, fees, and terms for credit cards, loans, and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees, and terms with credit card issuers, banks, or other financial institutions directly.
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Kirk Haverkamp is chief staff writer and editor for MortgageLoan.com. He covers the mortgage and personal finance industry from both a consumer and industryperspective, and provides guidance for consumers on how to approach the sometimes intimidating process of obtaining the right mortgage and personal finance products for their needs.
Costs Of A Home Equity Loan
Youll need to pay closing costs with a home equity loan, which can range from 2% to 5% of the loan amount. These are common fees you should expect to pay, although some lenders may waive certain fees or roll them into the loan:
Appraisal fees average between $300 to $500
average between $30 to $50
Document preparation and attorney fees costs vary and may be charged per hour or as a flat fee
Origination fees vary by lender and may be waived
Notary fees average between $50 to $200 per required signature or may be charged as a flat fee
Title search fees average between $75 to $100
Prepayment fees vary by lender
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How To Reduce Borrowing Risks
Consider all your options before taking out a home equity loan. Talk to a financial advisor or attorney to make sure you understand all the risks involved in using your home as collateral.
Have a clear idea of how much money you need. The lender may approve a higher amount, but you should only borrow enough to cover the expenses you want to pay. This will keep your monthly payments lower and keep you from spending more than necessary.
Finally, make sure you read through and understand all the loan documents. Confirm they are the same terms you agreed to before signing.
Home Equity: What It Is And Why It Matters
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Homeownership is one of the most straightforward paths to building wealth. The key component of this is growing your equity, which gradually shifts your debt into an asset.
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Do I Have Home Equity
If youve been paying off your mortgage for several years, then you likely have at least some home equity. As we explained above, you build equity as you pay down your mortgage. If you decide to use your home equity to take out a second mortgage, youll need to have your house appraised to determine how much it is worth. But, if youre simply curious about how much equity you have or want a general idea of how much equity you have before you head to your lender, heres how to do a quick estimate.
Home value= $376,000
80% of value = $300,800
How much you still owe on mortgage= $232,000
80% of your homes value amount you owe on mortgage= $68,800
In this case, you can expect to get a second for $68,800 or less.
Keep in mind that the number youll get from the above equation is just an estimate as youll only truly know the current value of your house when you get it appraised.
How To Calculate Home Equity
To estimate how much equity that you’ve built in your home, subtract the loan amount owing on your current mortgage and any other loans secured against your property from the market value of your property. For example, if your home is valued at $500,000 and you still owe $350,000 on your mortgage, you have $150,000 in home equity.
You can also use this information to estimate your current loan-to-value ratio. Your loan-to-value ratio is a calculation used by financial institutions to assess the level of risk associated with lending on the security of your home. The LTV ratio will impact how much a lender can lend to you on the security of your home and potentially the interest rates that are offered to you for those loans.
To estimate your current LTV ratio, you divide the amount of money borrowed for your mortgage and any other loans secured against your property by the current appraised value of the property. Lenders use the lower of the propertys market value or appraised value to determine the LTV ratio.
When you apply for a home equity loan or HELOC, in addition to your LTV ratio, lenders will also check your credit score to see if you have good credit. They will also, among other things, ask for proof of income and look to see if you have an acceptable debt to income ratio.
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About Home Equity Lines Of Credit
A home equity line of credit, or HELOC, is a special type of home equity loan. Rather than borrowing a specific sum of money and repaying it, a HELOC gives you a line of credit that lets you borrow money as needed, up to a certain limit, and repay it over time. It’s like having a credit card secured by your home equity. How much can you borrow? That’s where a home equity loan calculator comes in. It helps you figure how much of a line of credit you can secure with your available home equity.
All home equity loans and HELOCs are secured by the equity in your home that is, you’re using your home equity as collateral. That allows you to get a much lower interest rate than you can get with a credit card or other unsecured loan. And because home equity loans are a type of mortgage, the interest you pay is tax-deductible up to certain limits. HELOCs and other home equity loans are considered second liens that is, they are second in line behind your primary home loan when it comes to getting repaid in the event of a loan default or foreclosure. As a result, they are somewhat riskier for lenders than primary mortgages are, so they charge higher interest rates and generally have stricter qualification standards than regular mortgages do.
Want to see what sort of rate you can get on a HELOC? Use the “Get Free Quote” tab at the top of this page.
What Are The Best Banks For Home Equity Loans
Banks, credit unions, mortgage lenders, and brokers all offer home equity loan products. A little research and some shopping around will help you determine which banks offer the best home equity products and interest rates for your situation.
Start with the banks where you already have a working relationship, but also ask around for referrals from friends and family who have recently gotten loans, and be sure to ask about any fees. Experienced real estate agents can also provide some insight into this process.
If youre unsure of where to start, here are a few options to review:
- Lending Tree works with qualified partners to find the best rates and offers an easy way to compare lending options.
- Discover offers home equity loans between $35,000 and $150,000 and makes it easy to apply online. There are no application fees or cash required at closing.
- Bank of America offers HELOCs for up to $1,000,000 on a primary home, makes it easy to apply online, and offers fee reductions for existing bank customers, but it has higher debt-to-income ratio requirements than many other lenders.
- Citibank allows you to apply online, over the phone, and in person for both HELs and HELOCs. It also waives application fees and closing costsbut it does charge an annual fee on HELOCs.
- Wells Fargo currently offers only HELOCs with fixed rates, but the bank offers discounts for Wells Fargo accountholders, as well as reduced interest rates if you cover the closing costs.
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What Are The Requirements For A Heloc Or Home Equity Loan
Generally, borrowers for either a HELOC or a home equity loan need:
- > 20% equity in their home
- A credit score > 600
- Stable, verifiable income history for two+ years
It is possible to get approved without meeting these requirements by going through lenders that specialize in high-risk borrowers, but expect to pay much higher interest rates. If you are a high-risk borrower, it may be a good idea to seek out a for advice and assistance before signing up for a high-interest HELOC or home equity loan.
What Is Home Equity
Home equity is the difference between the value of your home and how much you owe on your mortgage.
For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.
Your home equity goes up in two ways:
- as you pay down your mortgage
- if the value of your home increases
Be aware that you could lose your home if youre unable to repay a home equity loan.
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Interest Rates And Fees If You Borrow On Amounts You Prepaid
You pay either a blended interest rate or the same interest rate as your mortgage on the amount you borrow. A blended interest rate combines your current interest and the rate currently available for a new term.
Fees vary between lenders. Make sure to ask your lender what fees you have to pay.
You may not have to make any changes to your mortgage term.
Alternatives To Home Equity Loans
A popular alternative that many people consider instead of a home equity loan is a home equity line of credit, or HELOC. Instead of a lump sum, this financial product gives you a credit limit as well as an interest rate, but doesnt charge you until you borrow against that line of credit. If the line of credit is revolving, that means that as soon as youve paid back that money, you can borrow again up to your limit with the same payback terms.
While a home equity loan works well for a predictable, one-time expense, HELOCs can provide flexibility if you need to smooth out cash flow occasionally, or if you have unpredictable and variable expenses coming up that would necessitate some borrowed funds.
If you dont wish to borrow against your homes equity or havent yet generated enough equity to qualify for a home equity loan, your main alternative is an unsecured personal loan. These loans can come with attractive terms but are usually more expensive than secured loans.
If you have assets elsewhere, such as retirement accounts like a 401, you can look into your account terms to find out if a temporary loan to yourself from those fundsprovided you pay it back on the correct scheduleis an option.
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What You Need To Qualify For A Home Equity Loan
Your debt-to-income ratio is a calculation lenders use to compare your gross earnings with your financial obligations. You can find your DTI easily online.
Most lenders may approve a borrower with a DTI below 43%, but that doesnt mean you cant find a loan if you have a little more debt. This is true especially if your is 700 or higher and your debt-to-income ratio is around 50%. Depending on your overall financial situation, some lenders may make an exception to this rule.
What Is A Personal Loan
A personal loan is an unsecured debt you borrow based on your creditworthiness and pay back to the lender. Consumer loans, installment loans, and multipurpose loans are all types of personal loans.
Unlike home equity loans, which are a form of secured debt, a personal loan doesnt require collateral to be approved, so no appraisals or fees are involved.
Just like a home equity loan, preapplication for a personal loan can start online or over the phone. You can also apply for a personal loan in person at your local bank or a credit union, and you can use the money for whatever you choose.
You may qualify for a personal loan if you have good credit, a consistent work history and increasing income potential.
Personal loans can help you reduce your monthly expenses, especially if you know your financial situation will improve soon. A personal loan could be a smart way to fund a new business, a vacation or college expenses.
Even if you own your home, a personal loan may be a better option than a home equity loan for expenses like these because of its flexibility.
One difference between home equity loans and personal loans is the time it takes from approval to cash-out. A home equity loan can take up to 2 months to complete. But, if you dont have much time to wait, you can receive your money from a personal loan in as little as 1 business day.
Similar to home equity loans, the lender will review your entire financial situation during the qualification process. This includes:
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Other Considerations When Applying For A Heloc
Applying for a HELOC could potentially affect your credit score . It acts as a revolving line of credit, similar to a credit card, and a high utilization rate can negatively impact your credit score.If used correctly, however, it can decrease your total credit utilization rate and act as a positive indicator of good borrowing behaviour.
Home Equity Line Of Credit Calculator
A Home Equity Line of Credit, or HELOC, is a one of the most popular and affordable ways to borrow money. But do you have enough home equity to qualify for one? And if so, how much can you borrow with your line of credit? This Home Equity Available Credit calculator is designed to help you answer those questions, based on the value of your home and current mortgage balance. The home equity loan calculator lets you take into account different equity requirements, which may vary depending on the lender and your credit score, and also makes it easy for you to see how the maximum credit line you can obtain might change if your home appraises for more or less than you expect.
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How Much Can You Borrow With A Home Equity Loan
A home equity loan generally allows you to borrow around 80% to 85% of your homes value, minus what you owe on your mortgage. You can do some simple math to estimate how much you might be able to borrow.
For example, say your home is worth $350,000, your mortgage balance is $200,000 and your lender will allow you to borrow up to 85% of your homes value. Multiply your home’s value by the percentage you can borrow . That gives you a maximum of $297,500 in value that could be borrowed. Subtract the amount remaining on your mortgage , and you’ll get the approximate sum you can borrow as a home equity loan in this case, $97,500.
Alternately, you can ditch the math and use our home equity loan calculator.
