Are You in the Right Place for a Home Equity Loan?
Tapping into your home's equity can be a useful way to receive a large sum of money that can be used to fund projects and reach your financial goals. At Generations Bank, we offer home equity loans as part of our services for our valued customers in the Finger Lakes Region and Western New York. Here, we discuss what home equity loans are and why they might be needed.
What Is a Home Equity Loan?
Also called a home equity installment loan or second mortgage, this type of loan lets homeowners borrow against their home. The funding comes from the portion of your home that's been paid off. Interest rates for home equity loans are generally lower than those for other consumer loans, making them ideal ways to borrow money for larger expenses.
Borrowers receive a lump sum that's paid off in installments across a set timeline – similar to a mortgage. An alternative to home equity lines of credit (HELOC) with variable interest rates, home equity loans typically come with fixed rates and payments.
How to Qualify for a Home Equity Loan
If you're considering applying for a home equity loan, the first thing to do is find out if you've earned enough equity to qualify for funding. Equity is the difference between what your home is worth and how much you have left to pay on your mortgage. Home equity is an asset that can be a source of savings that helps build a family's wealth or a financing option.
While each lender has its own requirements, they typically take credit score and debt-to-income ratio into consideration in addition to equity. Lenders also may have your home appraised to find out its current market value. Often, homeowners are allowed to borrow up to 80% of their home's equity.
Uses for a Home Equity Loan
One of the biggest benefits of a home equity loan is that there are no restrictions on using the funds. What's more, the fixed rates and predictable payments make it easy for borrowers on a strict budget to plan for the added expense. Some of the ways a home equity loan can be used include:
- Home improvements: If you're looking to remodel your kitchen or put an addition onto your house, a home equity loan can be a great source of funding. Plus, these types of projects increase your home's value over time, making them ideal investment choices for many people.
- Debt consolidation: If you have personal debt with higher interest rates, a home equity loan can be used to reduce monthly payments and pay off this debt more efficiently.
- College costs: Your home's equity can be used to fund a college education for you or your child. This is a favorable option when the rate of this loan will be considerably lower than that of the average student loan.
- Emergency expenses: While having an emergency savings account is the most ideal option, a home equity loan can be used as a backup to help cover the cost of some emergency expenses.
Explore Your Options with Generations Bank
No matter the use for your loan, it's important to have a sound plan in place for repayment. Because you're using your home as collateral, defaulting puts you at greater risk for foreclosure. Discussing your options with a financial professional can help you determine if this is the best type of loan for your specific circumstances. At Generations Bank, we can discuss your needs and walk you through the entire process of applying for a home equity loan. Visit one of our offices in the Finger Lakes Region and Western New York area, or contact us for more information about home equity loans today.
Posted In: Resources