Do You Qualify for a Home Equity Loan?

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When you apply for a home equity loan, lenders think your creditworthiness when deciding either or not to extend a loan. Your creditworthiness is assessed based on three things: credit history, income, and loan-to-value ratio.

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How is Do You Qualify for a Home Equity Loan?

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Credit History

As with any loan, your credit history will have a major ensue on home equity loan availability and loan interest rates. Fortunately, qualifying for financing on a home you already own is much easier than qualifying for a new home loan. If you have good credit, you should have no issue qualifying for a home equity loan. You should also be able to gain a relatively good rate. If you have bad credit, you should still be able to gain a home equity loan, but your rate will probably be a bit higher. Before applying for a home equity loan, take time to pull your credit report. If possible, heighten your credit rating by removing mistakes and old debt.

Income

Even though the equity that has built up in your home belongs to you, lenders will still want to make sure that you can pay back any number that you borrow. To decide your ability to repay, lenders will correlate your monthly earnings and your total debt-to-income ratio. (Debt-to-income ratio is a term used to divulge how much of your monthly earnings goes towards paying your mortgage, credit card debt, loan installments, and other financial obligations, including the home equity loan for which you are applying.) Most lenders will want to make sure that your total debt does not exceed 38 percent of your monthly income.

Loan-to-Value

The loan-to-value ratio is the number you owe on your house versus the number your house is worth. For example, if your house is worth 0,000 and you still owe ,000, your loan-to-value ratio is 70 percent. When you get a home equity loan, the value of your home is re-assessed. The lender will add your current mortgage balance to the requested home equity loan amount, and divide the sum by your home's current value. The final number is the new loan-to-value ratio. Many lenders want to keep this number below 80 percent. However, some lenders are willing to loan you 100 percent of your home's value or more. Here is a list of recommended Home Equity Lenders online. It's important to use a reputable lender online to make sure your personal facts is secure.

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