What A Home Equity Loan
A home equity loan comes in handy when it comes time to remodel or update a home. If you're like most of us, you will need extra money that has not been added into your monthly budget. Due to the large amount of costs for home improvements or repairs, a second loan based on the equity of your home (home equity loan) or a line of credit may be what you need.
A home equity loan is designed to improve home value while offering money to the borrower to update, remodel or make needed repairs to the home. These repairs or improvements could include roof repairs, interior and exterior painting, general repairs, installing carpet, tile, hardwood floors, plumbing repair, electrical repair, adding rooms, decks, pools or simply updating kitchens or bathrooms.
The dollar amount loaned to customers depends on the customer's credit report and their relationship with the lender. If the customer has great credit and had prior loans, the lender may offer 100% equity lending, while people with lower credit scores may receive less on equity lending.
Home equity loans can be for any number of years depending on the amount of the loan. If you are applying for a small amount, you may want to consider a two- or five-year loan. For remodeling and larger projects that will require a larger sum of money, you may opt for a 10- or 15-year loan. The lender will have a program that will best suit your needs.
Home improvement loans come in various forms, the most common being fixed rate or adjustable rate options. Most borrowers will choose a rate that is fixed which keeps the loans interest and payments constant so the borrower will not be faced with higher or lower payments due to the interest market. When you opt for an adjustable rate loan, you may pay higher or lower interest rates quarterly on the loan. Rates are based on the prime interest that financial institutes are charging.
Many home improvement loans require that a general contractor supervises the improvements of the home. Since home improvement loans are intended to improve the home, the lending institutes require the borrower to utilize the cash only for repairs and improvement. Many lenders will place stipulations on home improvement loans to guarantee the loan is actually used for home improvements.
Equity loans come with additional fees and costs such as title search and survey fees. Lenders may require an updated survey be taken and placed in official records. The borrower would have the option to choose who is hired to complete the survey, since this is a fee that will be paid by the borrower. Other fees, such as the legal costs and closing fees, will cover the legal aspect of the agreement. When applying for a home equity loan the lender may require that a home inspector check the condition of the home. This is an additional cost paid for by the borroworer, but you would be able to hire your own inspector, which could save you money.
Insurance, of course, is not optional for most home equity loans. The homeowner can select his own choice of coverage in most instances. Often times lenders will require the borrower to purchase life insurance polices. If you already have a policy in place this may reduce the cost of getting a home equity loan.
Property values are established by current sales records and appraisals, and will be a factor in determining a loan amount.
While this means having an additional monthly payment, it is a way to be able to increase the value of your home. Research your options for home equity loans and make the decision that will work the best for you.
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