Indeed, with the varieties of financial packages available out there today, finding the right funding for any purpose may not be as difficult as it once used to be. Some packages – like sunny loans – even leave rooms for IVA application, so that borrowers can find it easy repaying whatever they’ve been lent. But did you know that instead of seeking external funding of these sorts, you can even leverage your home mortgage if you ever need cash for any purpose? Many homeowners who have been in the habit of borrowing from their home equity understand the significance of this arrangement. And instead of concerning themselves with common worries like, what is IVA, how do I get quick personal loans, are payday loans good for me, they simply turn to their mortgage whenever they have a pressing need for money. If you also need money to tackle debt, attend to emergency purposes, or for other forms of expenses, turning to home equity can be a rather reasonable option. For starters, this arrangement may seem super strange considering that the home you intend borrowing with is a form of debt itself (mortgage). So does that mean I can borrow money using my home equity even if I’ve not completed my mortgage repayment? Yes, you can. But how much exactly is what you are about to find out within the context of this article.
Typically, most lenders allow homeowners to borrow between 75% – 90% of their home equity. While this is the common trend, other deterministic factors come in handy, too, such as home’s appraised value, credit history, type of loan, and lots more.
How much can you borrow from your home equity?
To determine the amount of money you can borrow from your home equity, it is important first to calculate what your home equity is. Remember, your home is most likely a result of a mortgage, which means you still have some payments to make. So to calculate your home equity, you are going to subtract your mortgage balance from the current value of your home. Let’s take, for instance, if your home is currently valued at $500,000, and your mortgage balance reads $300,000. This means that your home equity is currently at $200,000. Now, since most lenders will typically borrow you between 75% – 90% of your home equity, then, multiply your current equity by 0.75 or 0.9 to catch an idea of how much you are likely to obtain if you leverage your home.
How can I be qualified to borrow from my home equity?
The sound of this arrangement might seem so enticing, but believe me, it isn’t always a smooth ride. Most lenders usually turn many homeowners’ applications down. But who can blame them? After all, they cannot just hand you a fraction of your home equity in cash just because your current home value outweighs your mortgage balance. So to be qualified, the following boxes have to be ticked.
Credit score requirements
Yes, that recurring digit everyone understandably doesn’t fancy too much. Well, brace yourself, because it isn’t getting any friendlier. To borrow money from your home equity, it is often expected that you meet a credit score benchmark of 620 and above. And, if you want to get better interest rates, you should target a credit score that falls in the range of 621—759. If your score is rather too low, don’t even bother applying; instead, work towards improving your score by clearing your existing debt, using your credit cards responsibly, and following other green paths.
Credit history requirements
Before you are borrowed a dollar, most lenders will seek to find out what your credit history says, that is, what is your debt payment history, account history, credit history, and above all, what is your relationship with your past creditors in terms of payment defaults.
Another important factor to be considered is your DTI ratio. In simple terms, your DTI ratio is the ratio of your monthly income that is channelled into debt payments. If it’s too high, it means you are currently repaying many debts and vice versa. Homeowners with a very high DTI ratio are often declined because most lenders perceive that they may have difficulty fulfilling their repayment agreements considering the number of loans and debts such homeowner is currently paying. So, if you also have a high DTI, you are advised to first get debt help before proceeding with your home equity application, so as not to be turned down.
What are my home equity loan options?
If you tick all the boxes above, you may be granted a fraction of your home equity. But before you proceed with your application, it is important for you first to understand the home equity options available to you. The more popular options include:
- Cash-out refinance loan: often used to refinance an existing mortgage)
- Home Equity Line of Credit (HELOC): just like a credit card, you can borrow as much as your home equity allows you.
- The traditional home equity loan