Do you want to pay off credit card debt or other types of debt? Does your home need improvements? Or do you simply have some unexpected expenses? If this is the case, you may want to look into taking out a home equity loan. With a home equity loan, the amount you receive is based on your home's value. Your home is also used as collateral for this type of loan. Home equity loans are often a great option since they often have reasonable interest rates. If you are considering taking out a home equity loan, here are three things to consider.
Shopping Around Can Help
When it comes to taking out a home equity loan, there are a variety of lenders to choose from. When shopping around for a home equity loan, it's important to look at multiple factors. While interest rate is important, you will also need to see what fees the lender charges. Some common fees include maintenance fees, application fees, as well as the cost of an appraisal and a title search. These fees are often included within the closing costs, which are usually anywhere from 2 to 5 percent of the loan. In order to be competitive, many lenders will waive some of these fees.
Your Credit Score Has An Impact
While the value of your home plays a major role in how much you are able to borrow, your credit score is also taken into account. If you have a low credit score, you may not be able to qualify for a home equity loan at all. If you do qualify, your interest rate is likely to higher. That being said, even if you don't have an excellent credit score, home equity loans tend to be one of the most affordable forms of financing available.
How Much You Can Borrow
If you need a large sum of cash at one time, a home equity loan is a great option. The amount you borrow is paid off in fixed installments over an agreed upon time period. However, it's important to consider how much you can borrow. Most lenders will allow you to borrow anywhere from 75 percent to 80 percent of your home's current market value. However, it's important to make sure that the payments on the loan you take out work with your budget.
If you have unexpected expenses or need to pay for major expenses such as a home renovation or college, a home equity loan is a great option. Shopping around can help you find the best interest rate on your loan. Your credit score will have an impact on your interest rate; however, this type of loan tends to be one of the more affordable options available. You should also consider how much you are able to borrow and what payments will work with your budget.