{"id":52773,"date":"2024-05-15T17:59:26","date_gmt":"2024-05-16T00:59:26","guid":{"rendered":"https:\/\/www.movoto.com\/blog\/?p=52773"},"modified":"2024-05-23T12:16:31","modified_gmt":"2024-05-23T19:16:31","slug":"guide-to-home-equity-loans","status":"publish","type":"post","link":"https:\/\/www.movoto.com\/blog\/guide-to-home-equity-loans\/","title":{"rendered":"From Application to Approval: A Step-by-Step Guide to Home Equity Loans in 2024"},"content":{"rendered":"\r\n

One of the perks of purchasing a home<\/a> is a special lending scenario known as a home equity loan<\/strong>, which becomes available to homeowners once enough money has been invested in the principle of a mortgage.<\/p>\r\n\r\n\r\n\r\n

The key to effectively using an equity loan on a house is first understanding home equity loans<\/a>. Throughout the following article, we\u2019ll explain what they are, how to obtain them, and tips for effectively using your home\u2019s equity<\/strong>.<\/p>\r\n\r\n\r\n\r\n

How Does a Home Equity Loan Work?<\/h2>\r\n\r\n\r\n\r\n

A home equity loan unlocks a portion of your home’s equity, providing a lump sum payment for various uses.<\/strong> You’ll repay the loan with fixed monthly installments (principal and interest) over a set term, typically ranging from 5 to 30 years.<\/p>\r\n\r\n\r\n\r\n

Obtaining a home equity loan hinges on your home’s equity, which grows as you pay down your mortgage and potentially through rising property values.<\/strong> Even recent homebuyers with lower down payments may qualify depending on their equity stake. For example, changes in the real estate market allowed most homeowners to collectively accrue an extra $1.3 trillion in home equity in 2023<\/a>, which is up 8.6% from 2022.<\/p>\r\n\r\n\r\n\r\n

Similar to a second mortgage, an equity loan on a home uses your home as collateral.<\/strong> This offers potentially lower interest rates than unsecured loans but also carries the risk of foreclosure if you default.<\/strong><\/p>\r\n\r\n\r\n\r\n

Much like when first purchasing a home, you\u2019ll want to know your home buying power <\/a>by determining your financing needs and calculating your home’s equity. This will allow you to shop around for lenders to find the most favorable home equity loan rates<\/a> and terms. Once you have an idea of what your loan will look like, you\u2019ll simply need to factor in the additional monthly payment to ensure it aligns with your budget.<\/p>\r\n\r\n\r\n\r\n

Kinds of Home Equity Loans & How to Use Them<\/h2>\r\n\r\n\r\n\r\n

Like any lending situation, responsibly using the funds from an equity loan on a house is critical, as failure to repay can have similar consequences to defaulting on a mortgage.<\/p>\r\n\r\n\r\n\r\n

As such, home equity loans should be used to increase the property’s value through repairs or renovations<\/strong>. However, the funds can typically be used however you see fit.<\/p>\r\n\r\n\r\n\r\n

There are generally three <\/strong>different types of home loans<\/strong><\/a> available for financing a home:\u00a0<\/strong><\/p>\r\n\r\n\r\n\r\n

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  1. Fixed-rate home equity loans<\/strong><\/li>\r\n
  2. Home equity lines of credit (or HELOCs)<\/strong><\/li>\r\n
  3. Cash-out refinancing<\/strong>\u00a0<\/li>\r\n<\/ol>\r\n\r\n\r\n\r\n

    Each has similar criteria, though some kinds of loans (specifically, FHA loans) are limited in what\u2019s available to the borrower.<\/p>\r\n\r\n\r\n\r\n

    The basic criteria for all home equity lending are as follows:<\/p>\r\n\r\n\r\n\r\n