The equity in a home refers to the total value of a property, minus any amount that is still owed on it. This means that the equity in your home depends on how much the total home is worth, minus any money you still owe the bank for the original purchase of your home. Based on this amount, it is possible to get a loan from a bank for making improvements (which will increase the equity in your home), sending your child or yourself to school, or for any other reasons. The lender does not care as much about what you are using the money for as they do about the value of your home and your ability to pay the money back.
When borrowing against the equity in your home, you have two major options. One is a home equity loan, the other is a home equity line of credit. The primary difference between the two is that one, the loan, is a lump sum that is paid to you which you agree to pay off over time in even monthly payments. A home equity line of credit is much like a credit card; a revolving account that you borrow from as you need it and can reuse once you pay it back. This article will deal only with home equity loans.
To qualify for a home equity loan, you must have equity built up in your home or property over time. This means that your home has increased in value, or, you have paid a large portion of it already with a down payment or some other large sum of money. For instance, if you bought a home for $180,000 and made a down payment of $40,000 and have so far paid the bank another $40,000 in monthly mortgage payments, the equity in your home which you can borrow from is $80,000.
Often, it is best to get a home equity loan from the bank that is already responsible for your mortgage, but you can go through any lending company, and should find the one with the best interest rates. Your home equity loan is due in full should you choose to sell the property.
For many, when the housing market crashed, their homes lost equity as property values plummeted. If this is the case, you may need to wait until property values increase again to get a home equity loan. The best thing to do is to check with your bank or preferred lender. He or she will be more than happy to do the research for you. A lender wants you to borrow the maximum amount that your home is worth, so there is no danger of getting false facts or taken advantage of. Still, you should always only borrow what you absolutely need and are capable of paying back over time, no matter what the bank says you qualify for.
