How Soon Can I Get a Home Equity Loan?
Homeowners who need access to cash at low interest rates can apply for a home equity loan. Not only are the interest rates on these loans significantly lower than those of most credit cards and personal loans, but the interest is often deductible on federal income taxes. Regardless of how long you have owned your home, you may be able to cash out accumulated equity as long as you meet the lending requirements of your state and lender.
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Bank Requirements
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Most banks and financial institutions require you to have a minimum credit score in order to obtain a home equity loan. If you recently purchased the home, it is likely that your credit score suffered damage, which could limit the probability of qualifying for a home equity loan. Though this is temporary, it could be several months before you see your credit score restored to its pre-purchase level. Additionally, lenders may be reluctant to lend money against a newly purchased home unless you made a substantial down payment or the property has rapidly appreciated in value. Even if you are approved for a home equity loan, the interest rate may be much higher than if you allow more time between the home purchase and obtaining the loan.
State Law
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Depending on the state you live in, you may not be able to obtain a home loan until you have a substantial amount of equity in your home. For example, while California has no laws regulating the amount of money available for lending against a property, Texas only allows its residents to cash out money on up to 80 percent of a home's current appraisal value. This means that if you have a home in Texas with a 20 percent equity value or less, you cannot qualify for a home equity loan, regardless of how long you have owned the home.
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Second Lien
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A home equity loan acts as a lien against your property. This means that if you default on the loan, you could lose your house. If you are applying for the loan as a means to control debt or financial problems, consider seeking alternative sources of income. Bankruptcy rules protect your homestead from being seized to pay for unpaid debts, but using your home as collateral for a loan makes it free game if you default.
Liquidating Equity
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Choose how you want to liquidate the equity in your home. Most lenders offer two options: home equity lines of credit (HELOCs) and home equity loans. Both allow you to cash out against equity in your home. Home equity loans are fixed amounts provided to the homeowner with fixed monthly payments and interest rates. HELOCs are revolving credit lines similar to credit cards. Interest rates are typically variable, but you can cash out money whenever you wish. Both home loans and HELOCs against primary residences offer tax-deductible interest.
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References
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