Home Equity Made Simple – Things to Know Before Applying for Loans
If you’re a homeowner and you’re thinking about whether or not to take out an equity loan, pause before powering ahead.
There’s a lot to think about, and a few obstacles to overcome, before you can make the right decision. To help, here are the key talking points to take onboard ahead of submitting an application.
Understanding the Basics of Home Equity Loans
In essence, a home equity loan is a loan that’s secured by the value of your property, and can be used as collateral for borrowing money.
It allows homeowners to access cash that can be put to work for any purpose, such as buying a car, consolidating debt or making improvements to their property.
The amount available will depend on several factors including current market conditions, interest rates, credit score and more.
How to Calculate Your Available Home Equity
If you’re on the path to taking out a home equity loan, one of the first steps is to calculate how much equity you have available in your property. To do this, subtract any outstanding mortgages or liens from the current estimated value of your home.
This will give you an idea of how much money may be made available from a lender, although it’s worth noting that many loan providers will only offer you a proportion of this total as a percentage, rather than the entire equity. And of course you might only require a smaller chunk of cash, depending on what you’ve got in mind.
Regardless, having an understanding of this figure before applying for an equity package from a reputable provider, such as SoFi, can help ensure that you choose wisely and don’t stretch yourself too thin financially.
What Kinds of Projects Can You Fund With a Home Equity Loan?
Home equity loans can be used to fund almost any project. Some of the most common uses, other than those mentioned earlier, are for everything from college tuition and other educational expenses, to medical bills or even starting a business.
Depending on your financial situation and creditworthiness, you may also be able to access funds for more personal projects, such as traveling overseas, or a wedding. This is down to the discretion of the lender of course, so it pays to be upfront about your intentions.
When deciding which type of loan best suits your needs, it’s important to consider both short-term and long-term costs associated with each potential option. That way you won’t leave yourself in a precarious position because you funded an inappropriate project with an unaffordable loan.
Risks Associated With Applying for a Home Equity Loan
There’s no getting away from the fact that there are some risks associated with taking on this type of debt. For instance, there may be potential tax implications if you don’t use the funds according to IRS standards.
Also if you apply for a loan and are declined, or even if your application is accepted, your credit score will take a hit. This could hurt your ability to take out a loan further down the line.
If in doubt, always speak to a financial advisor, who will be able to give you tailored guidance on whether or not a home equity loan is the right move.
Plenty of people have much of their money locked up in bricks and mortar, and a home equity loan lets you break the bonds and enjoy your cash more immediately. A careful and considered approach to comparing and applying for loans will set you up to have the best experience.
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