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There are times when it helps to have some extra cash on hand. You can use that money to pay for unexpected medical costs, make essential home repairs, or pay down high-interest debt.
After paying down your mortgage, you may have a sizable amount of equity in your home. Equity is defined as the current market value of your house minus what you still owe on it. If your home is worth $400k and you have $100k left to pay on the mortgage loan, you have $300k of equity.
When you discover home equity loans, you may realize that they make sense, considering that the average interest rate is typically less than what you would pay on a typical credit card or some other form of unsecured debt.
Utilizing your home equity can help to free cash up to undertake renovations or pay down debt, among other purposes. But unless you take out a home equity loan, do a cash-out refinance, sell your home outright, or get a home equity line of credit (HELOC), that money won’t be liquid.
Continue reading and we’ll walk you through what you need to know about home equity lenders.
HELOC vs. Home Equity Loan
HELOCs and home equity loans are two types of ways for people to get equity out of their homes. Both of these lending products require that you have equity in your house, but they’re slightly different.
A home equity loan is a lump sum amount that you need to pay back in equal installments. The benefit of getting a home equity loan is that you’ll have a set repayment amount. Rates tend to be lower than a personal loan or credit card if you have a good credit score, but you’ll also have to use your house as collateral.
HELOC stands for “Home Equity Line of Credit.” It acts like a credit card, and you only use it when you need it. That isn’t a lump sum payment, and the interest rate can be variable. With that said, you can find fixed-rate HELOCs from some lenders too.
The benefits of HELOCs are that they usually offer a low-interest rate and are easy to get so long as you have adequate equity in your home and good credit.
The main disadvantage of a HELOC is that the interest rates can be unpredictable and variable, depending on how much you borrow.
Now that we have gone over the pros and cons of home equity loans and HELOCs, let’s look at some lenders.
If your goal is to get a home equity line of credit as quickly as possible, consider Figure. This institution is a new mortgage company. They offer HELOCs as well as mortgage refinance loans.
At Figure, you can apply for a HELOC in just five minutes and even get same-day approval. In as little as five days, you can get funding. According to Figure, it generally takes over a month to obtain a HELOC from a traditional institution.
Figure also has an online notary feature, which is available in some states that can help to make the closing process go smoothly and keep everything digital. However, it’s worth knowing that speed doesn’t necessarily mean you’re going to get the best rates.
If you have time to shop around, you should do so. Figure will charge some fees that most other lenders don’t. So it’s certainly a tradeoff for those who are looking for fast approvals.
For borrowers with excellent credit and combined loan to value ratios, interest rates start at 4.99% APR, plus an origination fee. It all depends on what your priorities are, but if you want to get a HELOC as fast as possible, then Figure might be the right choice for you.
Discover Home Loans
Discover Home Loans has been proudly serving its customers for more than three decades. You can access home equity of $35,000 up to a maximum of $200,000 with Discover Home Loans. Their interest rates are fixed and will begin at 3.99% APR. The first liens can go as high as 8.99% and 11.99% for second liens.
Keep in mind that these rates are subject to change without notice. It’s also easy to see if you qualify after you provide some necessary information before you formally apply for your home equity loan. Closing on your loan is too easy, thanks to the eClosing feature from Discover. This lets you sign electronically on most closing related documents.
There are also a number of repayment plans from Discover Home Loans. These range from ten to thirty years of fixed payments.
Before applying for a home equity loan from Discover, you should have adequate equity in your home and good credit. Once you make sure of that, you will be assigned a banker who is going to help walk you through the application process.
NOTE: Discover Home Loans does not offer HELOCs at this moment.
Regions Bank took the top honors in the 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study, beating out national industry heavyweights. The study rated the billing process, customer interactions, loan terms and offerings, and more.
This financial institution offers a fixed introductory rate of 0.99% APR for the first six months of a HELOC. The rates then shift to adjustable after that initial period. Flexible interest rates vary between 3.75% and 10.40% APR, with a maximum cap of 18% APR.
One exciting thing about the HELOC from Regions Bank is its loan in a Line option. That lets you covert all or part of your remaining adjustable-rate loan balance into a fixed-rate loan. Regions Bank also offers home equity loans in addition to their HELOCs. The bank even has a helpful tool that can help you decide which loan type will be best for you.
Unfortunately, Regions Bank only has branches in a limited number of states. And the property that you take the loan out on will have to be located in a state where Regions has branches. But if you do happen to live near an office, this could be a great option for you.
In the 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study that we mentioned earlier, BB&T ranked third. This lender offers both HELOCs and home equity loans. They also offer some great perks.
For example, there’s no prepayment penalty if you pay your loan back early. This bank will also pay the appraisal fee for you to get the current value of your home. This is a benefit that could end up saving you hundreds of dollars.
BB&T also has a variety of options when it comes to HELOCs. These include both variable- and fixed-rate loans and no-closing-cost options.
BMO Harris Bank
Not only does BMO Harris Bank have 500 branches spread across Wisconsin, Kansas, Minnesota, Florida, Illinois, Indiana, Missouri, and Arizona, but customers around the country can access their online banking resources. The home equity loans from BMO come with low fees, low loan minimums, and a variety of term options.
With so many ways to customize your loan to your financial situation, a home equity loan from this bank could be an excellent choice for practically any business need. Another great benefit of this bank is that there are no closing costs, no application fees, and a 0.5 percent interest rate discount when you set up autopay with a BMO Harris checking account.
Unfortunately, even though you can start the application process online, you’re going to have to speak with a banker to get final approval. Their variable rates start at 4.79% APR depending on the state you live in, and they offer loan amounts of $25,000 and up.
Finding a lender who is willing to extend credit to you if you don’t have a lot of equity in your home can be tough. Thankfully, KeyBank lets customers borrow up to one hundred percent of their home’s value for the first and second mortgage if they qualify.
That is also a great choice because their terms are very flexible. They have terms that go up to thirty years. Also, when you sign up with autopay, you get a 0.25 percent discount.
Because KeyBank is a regional bank, their home equity loans are only available in fifteen states. Also, there’s a $295 origination fee that you’ll have to pay. You also might have to pay for mortgage taxes, closing fees, and title insurance.
Spring EQ can be an excellent choice for you if you’ve built equity in your home and have a good credit score. To borrow from Spring EQ, you’ll have to have a debt-to-income ratio of as high as 50 percent and a minimum credit score of 680.
This institution also offers competitive interest rates. APRs here start at 5%, and they have flexible loan terms that can fit most borrowers’ needs. Starting at around 5% APR, you can borrow as much as ninety percent of your home equity. Applicants also don’t need to provide proof of assets.
If you’re a self-employed borrower, then you might have to provide more proof of income. Also, the high fees from this lender could have some borrowers turning the other way.
Flagstar Bank was established in 1987. They have 160 branches that spread across California, Ohio, Indiana, Wisconsin, and Michigan. This bank gets consistently high marks for customer satisfaction and offers a full lineup of banking services.
Borrowers can borrow up to eighty percent of their home equity with terms that range from five to twenty years on loans between $10,000 to $1 million. APRs start at 6% in some states. Home equity loans from Flagstar are only available in bank branches. If you live near a branch and can meet qualifications, then it’s definitely worth your consideration.
Why It’s Important to Discover Home Equity Loans
Now more than ever, people want ways to get more cash without accruing insurmountable debt. When you discover home equity loans, you open yourself to a whole new realm of financial possibilities. If you have the balance sheet to warrant getting this kind of loan, any of the home equity lenders listed above could be of great help.
Are you interested in learning more about mortgages? Check out our Mortgage page today to learn what you need to know!
Frequently Asked Questions
Learn the home equity loan basics
What is a home equity loan?
A home equity loan is also known as a second mortgage, equity loan, and term loan. It’s when a mortgage lender lets you borrow money that’s against the current equity in your home. If your mortgage isn’t paid off yet, you’ll pay your home equity loan every month along with your mortgage. It’s a way to have money for different financial goals such as medical bills or college tuition. It can also prevent you from continuing to build up credit card debt. Credit card debt is worrisome since high-interest rates can make you owe more money over time.
If you don’t pay your monthly payments, then the bank can take your home from you with a home equity loan. This loan also decreases your home’s equity. If you haven’t paid, and you’re looking to sell your home, you’ll have to pay both your mortgage and home equity loan with the profit from the sale. A home equity loan isn’t the same thing as a home equity line of credit (HELOC). If you have a home equity line of credit, you’ll receive a credit that’s secured by your home, and you can use it when you need it. It’s similar to a credit card. You won’t receive a large sum of money with a line of credit.
How does a home equity loan work?
How much you can borrow with a home equity loan depends on how much equity is in your home. It’s the difference between how much you owe on your mortgage and the value of your home. A lender will also take a look at your income and credit score to calculate how much you’ll receive. It’ll also tell them how much of an interest rate to charge you as well. When you accept this type of loan, you’ll receive the money all at once. They’ll also require closing costs just like your first mortgage. Ensure you shop around to find the best lender since rates will vary.
How to get a home equity loan?
Before even applying for a loan or lines of credit, first, make sure you’re in a financial position to pay back the loan on time. Determine all of your necessary expenses such as your mortgage, food, car payments, etc. Make sure you factor in the closing costs as well. Next, decide how much equity you have, and how much you’ll need to borrow. Keep in mind that if your loan is bigger than the value of your home, then the fees will be higher.
After this, you can start shopping for different lenders. Try to find the best deal you can before choosing the first one you find. Check out your local credit unions and banks for different options. You’ll want to take a look at the different fees, monthly payments, interest rates, the length of the loan, and any penalties for missing a payment. Also, ask your mortgage lender for a rate since they might give you a competitive rate.
How to apply for a home equity loan?
When you’ve decided on a lender, ensure that you meet the eligibility requirements since they can have application fees. Applying for a home equity loan is very similar to applying for your original mortgage. You’ll provide proof of income, your property tax bill, and apply with your current mortgage statement. After this, you’ll need to have a home appraisal done. When you’re approved, you’ll receive the amount you’re approved as a lump sum. You’ll pay the loan amount in regular payments for the term of the loan.
Most of the time, the loans will have a fixed interest rate. A fixed interest rate means your interest stays the same even if the market forecast changes. If you don’t pay on your loan, you could have the lender foreclose on your home. Normally, how much you can borrow is up to 85% of the equity in your home. You can either apply in person or online. Before signing, ensure you read all the terms of the loan. Any questions you have as you’re reading over it, make sure you ask your lender. Each lender will vary depending on whether they accept in person or online.
What bank has the best home equity loans?
One option for home equity loans is through Discover. They’re a national bank that offers credit cards with rewards. They also offer banking such as savings, student loans, personal loans, and checking accounts. Discover is available in many states and has a lower interest rate. You can choose a loan that’s 10, 15, 20, or 30 years. You don’t have to worry about application fees, origination fees, cash at closing, or home valuation fees. This is a great option for those who have great credit. If your credit needs to be improved, there are plenty of other lenders out there.
Are home equity loans tax deductible?
Tax deductions are limited but available for home equity loans. They’re normally available if you have the loan to take care of capital improvements. Speak with your tax professional to see if you qualify.
Can I use a home equity loan to buy another house?
Yes, you can use your equity from your one property to buy another. Home equity loans tend to have low-interest rates as well since you’re using your home as collateral.
Can you get a home equity loan with bad credit?
Yes, you can get a home equity loan even with bad credit. Since you’re using your home’s equity as collateral, lenders feel more comfortable offering you a loan. To improve your chances of getting approved with a lower interest rate, you’ll want to know your debt-to-income ratio. It’s what you make divided by what you owe. If your debt-to-income ratio is in the lower 40s or less, you’ll be highly regarded by lenders. It’s important to shop around since some lenders will still approve you even if you’re above the 40s. If your debt-to-income ratio is high, it’s helpful if your credit score is higher.
Can you refinance a home equity loan?
Home improvements are a good reason to borrow from your home’s equity. Most of the time you can refinance this type of loan. If you notice that home equity loan rates today are lower than your original rate, it’s a good idea to see if refinancing is a good financial option for you. Some reasons to refinance are:
- Switching from an adjustable-rate to a fixed-rate loan
- Avoiding balloon payments
- Receive more cash from the equity
- Receive a lower interest rate
Keep in mind that you’ll still need to pay this new home loan or you could risk losing your home. If your home goes down in value, you could wind up owing more in your loan balance than the value. It’s not always beneficial to refinance, so make sure you take a look at all factors. Some lenders will require you to pay closing costs or other fees to refinance. You’ll also have extra interest as well since you’re starting a new loan now.
Is a home equity loan a mortgage?
A home equity loan is also known as your second mortgage. The key difference between a traditional mortgage and home equity loan is that a home equity loan you receive after you have equity in your property. Whereas your traditional mortgage you take out to afford your home. A home equity loan is the same as a traditional mortgage where you pay a loan over time with a fixed term. A home equity loan isn’t considered a second mortgage if you own your home and decide to take out a home equity loan on your home’s value. This loan option can have lower closing costs but higher interest rates.
Is a home refinance or home equity loan better?
Lenders will usually pay most of your closing costs on home equity loans but not a cash-out refinance. A home equity loan would go further if the rates are better now than your existing mortgage. If you can lower your interest rate on your first mortgage and take out cash, then a cash-out refinance is a better option. Interest rates tend to be lower for cash-out refinances than home equity loans. Both options have fixed interest rates, but rates can be adjustable with a cash-out refinance. Both will give you a lump sum. Cash-out refinances tend to be easier to be approved for since it’s taking over your primary mortgage. Cash-out refinance can last for several years, similar to your primary mortgage. Home equity loans tend to be shorter when you need to pay them back.
Should I get a home equity loan?
When you’re deciding if a home equity loan is right for you, you’ll need to think about different questions such as if you have credit card debt with high-interest rates. Many choose a home equity loan to pay off any credit card debt.
Check out other loan and mortgage options before deciding if this loan is right for you. Compare interest rates, terms of the loan, and initial loan costs. Consider if you have a large purchase to make whether it’s home improvement or a wedding.
When your expenses come at one time, that’s when it’s better to choose this equity loan instead of a line of credit. Keep in mind how long you plan to stay in your current home. If you sell your home, your equity loan and primary mortgage will be paid off. If you’re not planning on moving soon, then a longer loan term is good to keep your payments lower. If you choose a shorter loan, that’ll regain the equity quicker so you’ll have more funds when your home is sold. Avoid a home equity loan for non-essentials such as a vacation. Make sure you can pay the loan off and are financially secure.
Ask your lender about possible fees such as:
- An early pay-off fee
- Closing fees
- Originator fees
- Appraisal fees
- Title fees
Keep in mind that home equity loans tend to be lower rates than credit cards so they can be more financially sound than a credit card. Before taking it out, ensure it makes more sense for you than a home equity line of credit. A home equity line of credit you’ll only take what you need, and pay that amount back instead of a lump sum.
What can a home equity loan be used for?
A home equity loan can be used for paying off high-interest credit card debts, your child’s college tuition, or home repairs. It can be used for any large remodeling or upgrades to your home, as well.
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