How to Determine the Amount of a Home Equity Loan

Having a loan secured to your home can be stressful. If you're unsure of the terms of said loan, it may lead to a dangerous situation where you're unable to afford your home. Even before entering into a loan agreement that involves your real estate, be sure to fully understand all terms involved so you can accurately determine your ability to repay the mortgage.

Things You'll Need

• Loan Paperwork
• Loan Statement
• Internet

Instructions

1. Determine the equity in your property. To do this, get an appraisal on your home (or do a search online that compares properties in your area) to get an accurate market value of your property. With this figure, subtract the outstanding balance of any loans (mortgages) you currently are obligated to on the property. The resulting number is the equity in your home.

2. Approach reputable lenders with an accurate idea of your equity, your credit (a free report is provided to consumers by the federal government) and your options for financing. Do some research on your own online and with friends and family to determine a good type of loan for your situation. Remember that many lenders will not finance a loan that leaves no equity left in the property. This is often referred to as 100% Loan to Value, or 100% of the value is consumed by outstanding loans.

3. If you already have a Home Equity Line of Credit, or HELOC, and you are unaware of the balance on the loan, find a recent loan statement or call your lender. In both cases, you can find your outstanding balance easily. It should also be reflected in your original closing documents, but after making payments, the original balance will be different.

4. Apply with lenders to determine the loan amount you are able to borrow. Keep in mind the higher the LTV (Loan to Value, see above), the greater the risk for the lender, and therefore the higher the rate and payment. If necessary, and if able, keep your total exposure (dollar amount of all loans on a property) below 80% of the value of the home. This will ensure a competitive rate, depending on your credit.

5. Accept the loan that best fits your needs. Prepare for a different payment schedule if you go with a revolving loan or a line of credit. Similar to a credit card, these loans base the payments on the outstanding balance--a number which can fluctuate depending on your advances. A closed-end loan will have fixed payments for the life of the loan.