While choosing a mortgage can be exciting, it can also feel quite stressful. There are many options, and it can feel like there’s a lot a stake every...
Home equity loans, also referred to as “second mortgages” are just one of the few ways you can use the equity in your home to receive extra cash that can be used for virtually anything. This type of loan, however, is most often used to pay for large expenses, like home remodeling or debt consolidation.
The amount of the loan depends on your home’s market value, or equity, and how much you’ve paid so far on your mortgage. For example, if your home is valued at $300,000 and you still owe $200,000, the amount of equity you have would be the difference—$100,000. The market value would be decided by an appraiser.
Just as with a regular mortgage, you can get a home equity loan from an online lender or from a bank or credit union. A home equity loan is generally easier to qualify for than other loan types you’re using your home as collateral.
While home equity loans can be a great way to convert your home into cash, it’s important to weigh the pros and cons before making a decision.
As mentioned earlier, to understand how much equity you have in your home, you’ll need to know how much you still owe on your mortgage and how much your home is currently valued at. When applying for a home equity loan, most lenders will require that you have a minimum of 15%-20% equity.
To determine your home’s value, you’ll need to have your home appraised. This involves hiring a licensed appraiser to conduct a full home inspection. They’ll consider various factors like the condition of your property, upgrades or additions you’ve made, the size of the property, and more to get the appraisal value.
The cost for a home appraisal is anywhere from $200-$600, depending on the size of your home, location, and the home’s condition, among other factors.
While you can take out a home equity loan through traditional lending institutions, like banks and credit unions, expanding your search to also include online-only lenders will help you find the best rates.
While most lenders have a similar set of requirements, like verifiable employment and income, access to tax records, and sufficient equity in your home, other factors will vary from lender to lender, like interest rates, fees, and credit score minimum. Shop around and compare lenders to find the best rates.
Let’s take a look at a few of our partner lenders currently offering home equity loans at competitive rates.
LendingTree is an online marketplace where you can shop and compare multiple lenders for various types of loans, including home equity loans. How it works is you answer a few questions about yourself, like the type of loan you need, and you’ll be paired with lenders in their network.
SoFi has teamed up with Spring EQ to offer home equity loans for borrowers who qualify. Borrowers can receive cash in as few as two weeks and with only four documents needed. They also boast low monthly payments and low-fixed rates.
AmeriSave is a mortgage lender that offers cash-out mortgage refinancing, which is similar to a home equity loan. This allows you to use the equity of your home to borrow money, but one key difference is that cash-out refinances pays off your existing mortgage and gives you a new one.
Aside from a home equity loan, there are two other ways to turn your home equity into cash—a home equity line of credit (HELOC) and cash-out refinancing. One key similarity between all three of these options is that you’re using your home as collateral.
Similar to a credit card, a HELOC is a revolving line of credit that you can use as needed to borrow against the equity of your home (up to a certain amount). Unlike a home equity loan, HELOCs typically have variable interest rates and the payments aren’t fixed.
This is another way to borrow against your home’s available equity. The big difference between a cash-out refinance and a home equity loan or HELOC is that this option involves paying off your existing mortgage, resulting in a new mortgage with different terms, like a different interest rate or monthly payment.