If you’re looking for more money to pay your bills and own your home, you may have considered taking out a home equity loan (HELOC). A home equity loan is a second mortgage that is secured by the borrower’s home and paid out in a lump sum. Lenders typically extend loans up to 85% of a borrower’s home equity. Once the funds are disbursed, you will need to pay interest on the entire loan amount. Interest rates vary depending on factors like employment, debt-to-income ratio and credit history.
Below, we answer some of the most frequently asked questions about the home equity loan process:
What are the requirements for a home equity loan?
The major requirement is that there is significant equity available in your home to be tapped in. Beyond that, standard underwriting practices are followed.
How much equity do you generally need to have?
The majority of lenders will lend up to a combined loan to value ratio of 75 – 80%. So, for instance, if your home is worth $1,000,000 and the outstanding balance on the first mortgage is $500,000 and the lender will lend up to a CLTV of 75%, a HELOC of $250,000 can be requested. Furthermore, most lenders retain the right to reduce the amount of HELOC availability based on the market value of the collateral; i.e. if the value of the home goes down, the lender can reduce the line of credit proportionally.
What kind of documentation do you need for a home equity loan?
All of the standard documentation that is required of any home mortgage. For more on what’s required, click here »
What does the application/approval process look like for home equity loans?
The application and approval process is very similar to a first mortgage. First, the borrower will apply for a loan and, once the terms are accepted by both parties, then the lender will commence underwriting the borrower and property.
How long can you usually expect the process to take?
Assuming both lender and borrower are diligent in their efforts, a HELOC can be closed in 60 days or so.
Do you get your funds right away after closing?
There might be a waiting period of a week or so while waiting for checks to come in but, otherwise, yes.
What kind of lenders offer home equity loans? Can you get one from your home bank, or should you shop around?
Banks are the most common HELOC lenders and should be your first stop when shopping for one.
We’re focused on your future. If you’re considering buying a home, investing in a real estate portfolio, or you’d like to know what home equity loans could mean for your real estate goals, get in touch with us at 617.314.9400 or fill out our contact form to get matched with an experienced real estate professional.
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