By
eHow Personal Finance Editor
Difficulty: Moderately Easy
Step1
Understand that a home equity loan is based on the equity in your house--the value of the property less what you owe on your first mortgage. For example, a $200,000 home with a $125,000 mortgage has $75,000 in equity.
Step2
Investigate lines of credit. A home equity loan is a pure loan with established payback terms. A line of credit can be used as you wish and offers greater payback flexibility--usually a minimum payment based on how much of the credit you have accessed. If you don't know how much that wedding is ultimately going to cost, for instance, a line of credit based on a high estimate may work out best. Or if your expenses will occur over several months, as in a remodeling project, a line of credit to draw on will end up costing less than a major loan at the start.
Step3
Find out how much you can borrow. Most home equity packages will let you borrow up to the point that your total debt--mortgage and home equity loan--reaches between 70 and 90 percent of the home's value.
Step4
Watch interest rates. Although home equity loans are less expensive than regular mortgages, interest rates will vary. Sites such as Bankrate.com display rates.
Step5
Keep an eye on costs. Compared to mortgages, home equity loans and lines of credit are currently dirt cheap. Many let you set up one at no cost at all and may offer low "teaser" interest rates for as long as one year.
Step6
Apply. Bring tax returns and proof of income.
Comments
billWatson said
on 12/30/2007 I think this is an interesting article. I have been researching home equity loans and home equity lending in general. This article was helpful. I also found home-equity-loan-lending.com to quite helpful, located at http://home-equity-loan-lending.com
Wallie49 said
on 11/6/2006 Home Equity - how do we get a loan based on the equity, or refinance our home? We still have poor credit, but are working to improve this (a long, drawn out process). We have never been late on our mortgage, but the bank refused to help us. It would make life so much easier to have a loan we can pay back over time. We had past problems, but now make a good income and can pay a reasonable second mortgage or equity loan. What should we do?