If you need money, you may be considering a loan. While there are many options, a home equity loan is one of the most popular. But how do home equity loans work, anyway?
Your home equity is the amount your home is worth on the current market, minus the amount you owe on it. Sometimes, the lender will send someone to appraise the property to be sure of its worth before finalizing the amount they are willing to loan you. These appraisals can cost up to four hundred dollars, but you can generally have that cost worked into your loan payments.
This is called a secured loan. That means that, while you will still need to show your potential lender pay stubs to show you have the income to make required monthly payments, the lenders will use your home as collateral to be sure you pay them back. Because it is secured, interest rates are generally lower for home equity loans.
It also means that you can get this loan without having a very high credit score, as they are using your home to ensure you make your payments. But since they are using your home to ensure you pay your loan back, you are put in the dangerous position of possibly losing your home if you can’t. This makes this loan risky, and you should think very carefully before borrowing money against your home.
If you decide this is the right loan for you, you can also find these online rather easily, usually with a quick application and a short twenty-four hour process, making this seem like fast money.
Home Equity Loans also come in lines of credit, very similar to credit cards. The amount you are approved for is still equal to your home equity amount, but you can withdraw small amounts of it at a time with cards (exactly like credit cards) or special checks. Just like with the loans, you can pay these back monthly, but the whole amount must be paid in full by the end of the agreed-upon term.
Home equity loans can be dangerous, because, as they are dependent on your home, you can lose it if you fail to pay the money back by the end of the term. On the other hand, depending on what your home equity value is, this is a fairly easy way to get a lot of money easily. Weigh the dangers with your needs before deciding if this loan is right for you, and be sure to ask each company how home equity loans work in their program.
Kari discovered the magic of writing early, in elementary school, and has devoted every spare moment to it since. She writes fiction for her own amusement, and recently began writing articles for The Daily Tar Heel in Chapel Hill. Besides writing, she loves spending time with friends and family, reading, and drinking coffee. She defines herself based on her faith in God, her family roots, and her dream of one day publishing a best-selling novel.