What is a Home Equity Loan?

If you have been considering getting a loan to help with the finances or to do some much needed home improvements, consider getting a home equity loan. What is a Home Equity Loan? It is a unique loan that is specifically designed for homeowner's. 

 What is a Home Equity Loan? 

Let's first take a look at the name of the loan. It includes the words "home", "equity" and "loan". I am sure you know what the words home and loan mean but what about the word equity? The definition of this particular word will vary upon dictionaries. However, according to the online version of the Merriam Webster dictionary, the third definition states: 

            "the money value of a property or of an interest in a property in excess

            of claims or liens against it" 

The above stated definition provides a very clear definition to What is a Home Equity Loan. However, the "excess" that is referred to in the afore mention meaning may or may not be of any value especially in today's economy. In order for the process to be worthy of everyone's time and efforts, there must be an "excess" available. 

This particular type of loan is only provided to those who own homes and have equity in their homes. Yes, you may have lived in your home some time now and to you, your home has value but if your home does not have value, then this type of loan is not an option. The financial institution will verify if your home or property for that matter does indeed have value above and beyond the amount of any current loans/liens that may currently exist. 

The determination for the value of your home is made by having your home or property appraised and also compared to the value of other homes/properties in the area. Once this value has been established, then the financial lender will compare that amount to the balance, if any, owed on the property as well as to any other outstanding debts that you may have. Of course, your income and past credit history will also be reviewed and considered if a home equity loan would be feasible for the applicant. 

For example, if you are wanting to obtain a substantial amount of money to reduce your monthly debt (let's say your bills) and you are considering the amount of $50,000 would be sufficient. In order for you to even consider a home equity loan as an option there must be more than $50,000 of current equity in your home. If you don't and you still want to proceed with this type of loan, you could receive a lesser amount or be denied altogether.

If it is determined that the difference between the appraised value of your home is much greater than your outstanding debts, then it is very likely that you will easily qualify for this type of loan. If approved, the loan will work just like any other type of loan in which you make monthly payment until the loan is paid off. If you choose to make additional payments, you can however be sure that there are no terms within the loan stating that you cannot do this. Generally speaking, extra payments can be made and placed against the principal but the loan cannot be paid off within the first one to two years of the loan. 

If you have been in your home for some time, the value of the housing in your area has not been drastically hit and you are in good standing with your creditors it is very likely that you would be approved for this type of loan. What is a Home Equity Loan? It is a loan that is based upon the value of your home versus your income and outstanding debts.

It is still possible to find Cheap Home Loans, you just have to know where to look.

Government Home Loans

Are Government Home Loans for everyone? It is possible that anyone could obtain a home loan via the government (federal, state and even local) but of course as with anything else, there is criteria that must be met first. Let's review some of the more popular loans that are available and who can qualify. 

FHA Home Loans - Also called Federal Housing Administration, this organization is a department of the United States Department of Housing and Development otherwise known as HUD. These particular Government Home Loans are geared to assist families who have moderate to low income levels. The lender must be HUD approved. 

In addition, these types of loans typically have a much lower down payment required. The annual percentage rate is generally lower as well as the length of the loan can be varied from 10 up to 30 years in length. One huge benefit of an FHA loan is that there is generally no penalization for paying the loan off early. 

Conforming Home Loans - These types of loans are considered more conventional and are typically offered by entities known as Fannie Mae and Freddie Mac. The loan limitations offered can vary from year to year so if you are considering obtaining a loan with these institutions in the later part of the year, it would be best to ensure that the loan would be completed before year end. 

The limitations and exclusion criteria can be based on a number of components such as region, the economy and the borrowers income. The limitations are based on the funds that are available which can fluctuate. Conforming home loans can also be used to obtain second mortgages. 

VA Home Loans - These particular Government Home Loans are made available to a large number of people who have either served in the United States military or to an immediate family member (such as a spouse) of a veteran. Whether you have proof that you are currently active, are in the reserves or have since retired the options to obtain a VA loan are available. 

A Veterans Affairs home loan can be obtained through any financial institution who offers this particular product. Most lending institutions do participate as veterans are a very important part of the United States past, current and future. To determine your eligibility, you can submit an application online or via the postal service. 

RHS Home Loans - Rural Housing Service loans are available to those who live in rural areas. These particular Government Home Loans are guaranteed by the government so this option is a must to consider if you meet the eligibility criteria. One must live in the home that is to be purchased, the home must be moderately priced and the borrower must have adequate income and credit history.  

Benefits to this type of loan include no private mortgage insurance to pay for, there are no requirements for any down payment and any and all closing costs can be included within the home loan itself. Although only single family homes can be purchased, this type of loan is beneficial to those who need to live in rural communities.

There are numerous benefits available to those who qualify but of course the tricky part is to find those programs. You may also be able to obtain financial assistance in purchasing a home through your local city government; again the terms and conditions will vary if these options are available in your area. There are numerous GovernmentHome Loans available, you simply need to get started.

Home Equity Loan Rates

As the economy changes, so do the Home Equity Loan Rates. There are numerous places where these changing rates can be accessed and each location should provide current and accurate information to the consumer. Knowing what the rates are will assist you in determining if now is the best time for you to obtain a home loan. 

A home equity loan is a loan in which money is borrowed from a financial lending institution against the equity of the borrower's home/property. This type of loan can also be called a line of credit as your home is considered collateral of which you are borrowing against. For some, this may be the best solution while others, it's not. 

Did you know that even though there are set rates, the rate that you may be qualified for can be established based on your income and credit history? The financial lender will consider your financial circumstances along with the current rates and how much of a loan you are requesting. Most people who are applying for a home equity loan are requesting to borrow a large sum of money so the lending process is just as important as if the borrower is purchasing a new home. 

When searching for the best Home Equity Loan Rates, it is best, yes I'm going to say it - to shop around. Yes, you may love your bank but you just might get a better deal from one of their competitor's. Shopping around will not only give you an idea what is available, but it will also be educational as some may provided your more information than others. 

Being informed and educated about the current rates is beneficial in understanding what the monthly payment will be and how much money you will actually be spending over the course of the loan. There are calculators available online to help you determine approximately what the monthly payments will be and the final amount of the loan accordingly to various rates. Using these calculators can guide you to when it may be best for you to apply and "lock in" your loan rate. 

One feature of a loan that you should be concerned about when choosing a loan and the financial lender is to know if the loan rate is fixed or is a variable. A fixed loan has a rate that stays the same for the life of the loan. A variable rate will fluctuate to a certain degree accordingly with how the economy is performing and therefore what the current market interest rate is. 

The loan rates can also vary according to the region in which you live as well as the length and type of the loan. This is why it is very important to be educated about the various loans, the various terms/conditions that can apply and how the rates can affect your payments. You certainly wouldn't want to take a variable loan that has a starting monthly payment which could balloon into something that you can no longer afford. 

The best thing to do is to begin asking questions and ask them of more than one financial institution and most importantly, just because you ask questions doesn't mean that you have to sign on the bottom line. If you feel that you are being pushed into having papers drawn up and you are not ready, please get up and leave as you are not bound by anything to stay at that point in time. Never feel that you must apply just because you are asking questions. If you do apply, ensure that the papers you are requesting are for a pre-approval or estimate only with no strings attached.

Whether you need additional funds to pay for college or unexpected and expensive damages must be repaired on your home, obtaining a line of credit may be the best thing for you. Always ensure you understand the Home Equity Loan Rates before you sign.

Home Equity Line of Credit

For some, a Home Equity Line of Credit may not be the best thing to apply for in today's poor economy. Although, for others who are fortunate enough, this type of loan may still be a possibility to obtain. A line of credit has been a financial option for a number of years and hopefully it will be an option for years to come.

What is a Home Equity Line of Credit? 

There are a number of loans available from a traditional 30 year loan to a modified home loan in which has very particular terms between the lender and the borrower. When a home loan is being considered, all types of loans should be taken into consideration to determine which is the best loan for the borrower. If fact, even if the borrower believes one loan may be the best for them, the lending institution may believe that another loan would be better and offer it instead. 

Obtaining a home loan is a very large decision to make because a home is a long term financial agreement that must be adhered to accordingly to the contract's terms on a monthly and yearly basis. After several years, the owner's may decide that they need additional funds for one reason or another. Deciding that obtaining another loan to compensate for the financial offset that they are experiencing is a must. They have been able to build some equity and are considering a home equity loan. 

Would you be willing to put your home up for collateral in order to obtain a loan? Essentially, this is what is occurring with a line of credit but only to a point. A Home Equity Line of Credit is a loan that can have a ceiling based solely upon the equity your home has.  

To determine if you qualify for a home equity loan, the lending institution that you are considering obtaining the loan from will first need to determine if you meet their specific criteria in order to even be considered for the loan. You must be able to show that you can make the required monthly payments as well as have a decent credit history. In addition, the amounts of your current debts will also be considered. 

Why opt for a Home Equity Line of Credit? 

If you have been able to build equity in your home, the amount built will be used to determine the amount of the loan and if the approval of the credit will be given. The amount that is being referred to will be determined by the current value of your property along with other factors such as the value of other properties in the same area. Do you know what the current market rate is of your home?

If you have an idea, then you can take that amount and reduce the amount still owed on the property and the difference will be the approximate amount that can be considered for a line of credit. However, the lending institution may disagree with this but it is a good guide as to how much you could possibly request and receive. The best thing you can do is to ask. It is best to inquire from several financial institutions to get the most information and best loan possible. Your home is your largest physical asset and using it to obtain a Home Equity Line of Credit is possible and might be the solution you have been searching for.