Home Equity Loans
Questions and Answers
What is a home equity loan?
A home equity loan is a financial product that allows a borrower to use the market value of a home as collateral for a loan. Loans secured by real estate generally are considered safer by lenders, resulting in lower interest rates than for other types of loans.
Equity is easily calculated by subtracting the amount owed on the home from the current market value. For example, if a house with a market value of $100,000 has an outstanding mortgage of $30,000, the homeowner has equity of $70,000. If there were no mortgage or other type of lien on the house, the homeowner would have $100,000 in equity.
How much can I borrow?
Through home equity loans, a lender can borrow up to the percentage set by their state law, usually 70% to 80%. For example, in Texas lenders can borrow up to 80% of the value of their homes as collateral. Consider the example of a home valued at $100,000 with an outstanding mortgage debt of $30,000 and $70,000 worth of equity. Because homeowners are limited to borrowing no more than 80% of the home's value, the homeowner would simply calculate 80% of $100,000 ($80,000) and then subtract $30,000 to arrive at a maximum loan amount of $50,000.
Total mortgage debt, including the amount of any existing mortgages plus the projected home equity lien, cannot exceed 80% of the home's current fair market value.
Homeowners with 20% or less equity in their homes are not eligible for home equity loans.
Be warned that home equity loans are often the subject of loan fraud. Protect yourself by having sufficient knowledge to choose well. Read our special reports:
Home Equity Loan Scams
Don't Be A Victim Of Loan Fraud
Next, you'll need to find out how much you can borrow, the costs and interests rates...
Home Equity Loans: How Much Can I Borrow; What Are The Costs And Interest Rates?
Why can't I borrow against more than a certain percentage of the home's value?
Many states have opted to limit the loan amount to 70% or 80% to help prevent overextensions of credit and protect their economy during times of economic slowdown.
How are home equity loan interest rates determined?
Market competition and conditions determine the rates in general; the borrower's own credit history will further affect the rate offered. Home equity loans usually have lower interest rates than do other types of consumer loans, such as loans secured by personal property or loans secured simply by a borrower's signature (unsecured loans). First mortgages (the primary loan on a house) generally have the lowest interest rates. As with any financial arrangement, you should shop around to find the best deal. In the Consumer Assistance section of our Web site are links to some handy online calculators that will help you compare loan programs.
What other costs are involved?
Lenders can charge certain fees, usually called closing costs, in addition to interest. On a home equity loan, closing costs cannot exceed three percent (3%) of the principal amount borrowed. Prepaid interest, also known as points, is not subject to the 3% cap.
Next, find out what to do if you feel a lender has overcharge you and if you can get a first and a second home equity mortgage...
Home Mortgage News
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Lenders One Mortgage Cooperative , a national alliance of mortgage bankers, has developed a partnership with Document Systems Inc. (DSI) to provide cooperative members with preferred pricing of DocMagic's fully compliant initial disclosures and closing documents. DocMagic seamlessly integrates with all leading loan origination software systems to provide lenders with error-free mortgage ... Lenders One, DocMagic Partner for Mortgage Loan Fulfillment (Business Wire via Yahoo! Finance)
ST. LOUIS----Lenders One Mortgage Cooperative, a national alliance of mortgage bankers, has developed a partnership with Document Systems Inc. to provide cooperative members with preferred pricing of DocMagic's fully compliant initial disclosures and closing documents.
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