Qualifications for Home Equity Loans
How do you qualify for a home equity loan?
A home equity loan is a second mortgage. It uses the equity in your home as security for a loan. The low-interest rate and substantial loan amount make it an attractive source of funding for various needs. To qualify for a home equity loan generally requires you to have the following:
Good credit. You need to have a positive credit history to qualify for a home equity loan. Make sure that you eliminate any overdraft accounts, credit lines are to date and that you are not delinquent on any accounts. Your credit score not only affects whether you get the loan or not, it also affects the rate you will get. It is important to work on your credit score before you consider applying for a home equity loan.
Available home equity. Home equity is the difference between the value of the house and the mortgage on the house. The positive balance is what you will use to secure the loan. The best way to achieve a positive home equity loan is to pay down as much of your mortgage as possible before the application of a home equity loan. For example, if you anticipate your child going to college in a few years, you can start reducing the mortgage owed in advance. Maintaining and repairing your home can also have a positive impact on its value and ultimately your home equity.
Sustainable and low debt-to-income ratio. Lenders derive how well you manage debt from how you handle other loans. Pay them on time if not in advance and you will be seen as a favorable applicant.
Regular, reliable and solid source of income. Your employment records or business tax returns will be reviewed to determine your financial stability.
A loan amount that's within your means. Apply for a home equity loan that you can handle. Lenders will be hesitant to give you a loan in which you will struggle with payments, borrowing to the hilt shouldn’t be an option.