Home Equity Loan


What is a Home Equity Loan?

A home equity loan allows you to borrow against the value of your home. For instance, if your home is valued at more than what you owe on it, you may be able to borrow some of the difference.

For instance if your house is valued at $200,000 and you owe $120,000, it means that you have $80,000 “Equity” in your home. Thus your home equity loan would be a loan on the $80,000 that you own in your house.

A home equity loan is considered a “Second Mortgage” on your home since your first mortgage is the original one you used to purchase the home. Home equity loans are setup with fixed monthly payments and interest rate throughout the entirety of the loan.

Home Equity Loan Benefits

There are a TON of benefits that go along with home equity loans, but here we will outline a few.

  • Lower interest rate – home equity loans typically have a lower interest rate or APR than a conventional 30 year mortgage.
  • Bad credit qualifies – It is easier to qualify for a home equity loan if you have bad credit. But check with a mortgage broker if you are interested to see what their standards are.
  • Tax deductible – The interest charged on this loan may be tax deductible.

Another big benefit of home equity loans is that you are able to qualify for a relatively large amount of money compared to other loan types.

When you are approved for a home equity loan, you are given a lump-sum of cash to be used in any way you wish. Some of the most common uses for home equity loans include:

  • Home remodeling, renovations and other home / property improvements
  • College education
  • Funding the purchase of a second home
  • Debt consolidation of high interest credit cards.

Why is it easier to qualify for a home equity loan?

This type of loan is largely considered a “safer” loan for banks and lenders to make because the loan is secured by the value in your home.

Home Equity Loan Qualifications

Even though home equity loans are easier to qualify for, lenders will still have some stipulations that they want to follow to ensure their loan. So in order to protect themselves, lenders will try to make sure that you don’t borrow more than 85% of your home’s value (including the value of your first mortgage).

Who Should Get A Home Equity Loan?

Let the equity in your house work for you! A home equity loan offers competitive interest rates and monthly payments compared to other loan types.

The home equity loan give you an opportunity to save money on bills, taxes and can even help you consolidate debts like credit cards.

Are you wanting to make home improvements, consolidate bills, buy a new care or take care of some medical bills? A home equity loan could be a great option for you.

Frank Perea is a mortgage broker based out of Midland, Texas and serves clients all throughout eastern Texas including: Odessa Texas, Monahans Texas, Big Springs Texas among others.