100% Home Equity Loan

Written by Paul Smith

Should You Choose a 100% Home Equity Loan? There are many ways that you can get money when you are in need.  You could go out to a bank and get a traditional loan.  The downside to this is that you may not get as much money as you may need because you don't have the right kind of collateral.  Another method is to just use credit cards for your purchases, although these tend to have very high interest rates and strict terms.  Although all of these options do have upsides, there is actually a better idea.  You could use the equity on your home as collateral, applying for a home equity loan. Home equity loans are called as such because they use the equity that you've built up on your home as collateral for a second mortgage loan.  Equity is the value of your home when you take into account how much it is worth and how much you still owe on the original loan.  When banks consider you for a home equity loan, they will be looking at the appraisal of your home to see what it is worth.  This can be more or less than what you originally bought it for.  Let's say that your home is worth $300,000 based on that appraisal.  You still owe $175,000 to the bank as a mortgage loan.  That means that there is $125,000 worth of equity that you can work with.  The bank will use this number to determine how much they want to give you for your new home equity loan.  How much of your equity you can borrow depends on many factors, most of which are left up to your bank to decide.  For one thing, every American state has their own rules governing home equity loans.  These loans will dictate how much you can borrow, so keep this in mind.  The bank will also have a look at your current credit history .  The better your credit is, the more money you will get for your home equity loan.  They'll also look at other factors of your life, so be sure to let them do the necessary research involved in the process. Some banks will let you take out 100% home equity loans.  This means that you get the exact amount of equity that you've built up.  Taking the above as an example, you had $125,000 of equity.  With a 100% home equity loan, you could take up to that amount for whatever you want to use it for.  Although you will get a lot of money with this method, there are some downsides.  For example, with any home equity loan, you lose that value on your property.  If you borrow $25,000 of the $125,000, you now only have $100,000 worth of equity until the loan is paid off.  Then there are 125% home equity loans.  These let you borrow even more money than what you have built up in your home.  You should only consider this if you really need the money because there are a lot of downsides to these.  125% home equity loans will take away the value on your home until you have paid it off.  Still, it can get you the money that you truly need. As you can see, there are more options for you than most people would think.  Sure, you can choose to pay for your purchases with credit cards or traditional loans , but you won't necessarily get what you want.  Instead, you may want to choose a home equity loan to do this instead.  Just keep in mind that are many options even with home equity loans when it comes to borrowing money.

 

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