When you apply for a home equity loan, lenders think your creditworthiness when choosing either or not to expand a loan. Your creditworthiness is assessed based on three things: credit history, income, and loan-to-value ratio.
Credit History
As with any loan, your credit history will have a major supervene on home equity loan availability and loan interest rates. Fortunately, qualifying for financing on a home you already own is much easier than qualifying for a new home loan. If you have good credit, you should have no issue qualifying for a home equity loan. You should also be able to obtain a relatively good rate. If you have bad credit, you should still be able to obtain a home equity loan, but your rate will probably be a bit higher. Before applying for a home equity loan, take time to pull your credit report. If possible, improve your credit rating by removing mistakes and old debt.
Income
Even though the equity that has built up in your home belongs to you, lenders will still want to make sure that you can pay back any amount that you borrow. To decree your ability to repay, lenders will assess your monthly earnings and your total debt-to-income ratio. (Debt-to-income ratio is a term used to narrate how much of your monthly earnings goes towards paying your mortgage, credit card debt, loan installments, and other financial obligations, together with the home equity loan for which you are applying.) Most lenders will want to make sure that your total debt does not exceed 38 percent of your monthly income.
Loan-to-Value
The loan-to-value ratio is the amount you owe on your house versus the amount your house is worth. For example, if your house is worth 0,000 and you still owe ,000, your loan-to-value ratio is 70 percent. When you get a home equity loan, the value of your home is re-assessed. The lender will add your current mortgage equilibrium to the requested home equity loan amount, and divide the sum by your home's current value. The final amount is the new loan-to-value ratio. Many lenders want to keep this amount below 80 percent. However, some lenders are willing to loan you 100 percent of your home's value or more. Here is a list of recommended Home Equity Lenders online. It's leading to use a reputable lender online to make sure your personal data is secure.
Do You Qualify for a Home Equity Loan?