Debunking the Myths About Home Equity Loans
Home equity is your home's value minus your outstanding mortgage debt. If you don't have money to pay for home renovations or need money for some other urgent matters, you can acquire a loan against the value of your home. Home loans acquired in this way are called home equity loans. Many people have misconceptions about home equity loans, as you will see below.
Home Equity Loans Are Similar to Other Lines of Credit
Home equity loans are the same as credit cards and personal loans because they give you access to funds that you need urgently. However, one of the significant differences between these loan options is that home equity loans are secured while credit cards and personal loans aren't.
Secured loans are granted on the condition that you provide an asset or collateral. No security is required for credit cards and personal loans. In case you default on paying a secured loan, the lender has the right to sell your collateral to retrieve their money. One of the benefits of loans acquired with security is that you pay lower interest rates than loans that don't require collateral.
Home Equity Loans Are HELOCs
These are two different types of loans. In both cases, you use your home as collateral. However, the money is disbursed differently. If you apply for a home equity loan, you get one lump sum payment, and the payments for the loan begin immediately.
With a home equity line of credit, money is disbursed to the borrower on an as-needed basis. There is no fixed interest rate. This means the interest rate is subject to seasonal changes.
Low-Income Borrowers Don't Qualify
Although it is difficult to get a home equity loan, it isn't impossible if you are a low-income earner. If you have a cosigner, your application may be approved. To qualify as a cosigner, a person must have a high income and a good credit standing. The cosigner is a guarantor who accepts to absolve your debt if you breach the loan agreement terms.
Moreover, you can also get a home equity loan if you are in between jobs but have other sources of income like rental apartments. To qualify on this basis, file for unemployment income.
If you want to make improvements to your home or are strained for cash, a home equity loan can give you the break you need. Before choosing a lender, identify your needs and find a lender with terms and conditions that suit your financial situation.