Also known to those in real estate as a second mortgage, a home equity loan can help you accomplish much the same type of goal as mortgages do. Whereas a mortgage aims to get you ownership of a property, with all money borrowed to be paid back in the fullness of time, a second mortgage may help with a home improvement project such as an addition—with your current home equity staked as collateral.
Why Are Home Equity Loans Useful?
There are a great many possible use cases for home equity loans. It would be nice if all home equity loans added a new garage, guest house, or like contributions to the grandeur of your home. In actuality, though, a good many home equity loans aim not to remodel or renovate but to repair or flat-out demolish.
These repairs could be for physical damage done to your house, or for financial debt accumulated over time through the ownership of your home. Whatever the cause for need, you actually do not have to present a valid reason for taking out a home equity loan. That means it's possible to use a home equity loan to finance medical bills or college education.
How To Get A Home Equity Loan
The process by which you may obtain a home equity loan compares roughly to applying for a new credit line. And because it nearly always involves less capital, you'll find it easier to apply for a home equity loan than a "first mortgage."
Lenders like US Bank may require the following: an estimate of your house's value, proof of income documents, a valid Social Security Number, documents showing outstanding balances on your house, a mortgage statement, a property tax bill, and homeowner's insurance. While that laundry list is not meant to be exclusive, it covers the bulk of what you'll need for a home equity loan.
US Bank Home Equity Loan Options
US Bank claims through their website that "a home equity line of credit could be just what you need for your next major project." Presumably, they have chosen to advertise the line of credit option because borrowers are more likely to extend said credit line. But what about a simple home equity loan?
Buyers looking to finance a one-time expense in excess of $15,000 should consider a home equity loan, according to US Bank. According to the website, the loan also may be useful to those seeking to consolidate debt, or keep an ongoing mortgage afloat. These use cases, briefly outlined on the website, seem to fall in line with the loaner personas shown above.
The cost-effectiveness of these loans depends by and large on your ability to pay them back on time. The loans operate on a fixed-rate schedule and incur no up-front fees, so again, so long as you are able to meet paydays for this loan, it may make some degree of sense for you.
Is US Bank the right option for you, though? The answer will depend on your comfort level with the bottom line for a home equity loan through this service, as opposed to those covered in this next section.
Other Options For Home Equity Loans
A Home Equity Line of Credit (HELOC) can be thought of as an alternative to a home equity loan. Even though a HELOC and a home equity loan effectively do the same thing—i.e., allow you some financial wiggle room—the terms and conditions for either option differ. Plus, you're able to borrow more money with a HELOC (up to $1 million with US Bank) than typically is feasible on a one-time home equity loan.
On a HELOC, you often repay borrowed credit on what's called "draw and repayment" periods. During the draw period, you're able to borrow available funds for the splintered roof, the ominous sinkhole, or whichever purpose you had in mind. Then, ideally after that purpose has been fulfilled, you repay the amount borrowed in installments.
Importantly, home equity loans vary in APR percentage. A lender like US Bank often offers home equity loans between 3% and 10% depending on variables such as your credit history and the value of your current home equity. A good rule is never to borrow a home equity loan on an APR that exceeds 10% in interest rate.
Does Home Equity Make Sense For Me?
It actually can be a good sign if you're stuck on whether to borrow funds for debt consolidation, physical repairs, or even a down payment on a new home. Your indecision means you haven't leaped to any illogical conclusions as to whether you actually need more capital. After all, maybe it would be best simply to sell the house and move on?
And if you find yourself in such a predicament, Clever Real Estate is here to answer any of your home-related questions. Check out our blog for more answers or contact a Clever Partner Agent for a free consultation within 24 hours.