If you're looking at a major purchase or emergency financial need, you probably need a loan. Unfortunately, personal loans can be difficult to obtain nowadays. Banks are pretty strict with their policies, and it's not as easy to borrow money as it used to be. If you own your home and you have good credit, you may be able to apply for a home equity loan. One of the benefits of home equity loans is that your biggest asset can go to work for you. That's because equity loans allow you to borrow money based on your home's value. Before you go and apply for a home equity loan, here are three things you should know about them.
Loans Are Determined by How Much of Your Home You Own
If you're in need of a home equity loan, it's important to understand how much you can borrow. First, you need to know how much you paid for your home—which is something you probably know right off the top of your head. Second, you need to know how much of your home you actually own—which is the difference between what you paid for the home and what you still owe. For instance, if you paid $300,000 for your home and you still owe $200,000, you have $100,000 in equity.
There Are Two Different Ways to Draw Off Your Equity
Once you know how much equity you have in your home, you'll need to decide how to access it. There are two different ways to draw off the equity in your home. The first is through a home equity loan. An equity loan allows you to borrow a specific amount of money. This type of loan is great if you have a big purchase you need to make or if you have a large unexpected expense that needs to be taken care of. However, if you know that you're going to have smaller expenditures over time, you might want to consider a home equity line of credit—or HELOC. A line of credit will allow you to draw off your equity as needed.
Loans Are Attached to Your Home
Before you go out and apply for a home equity loan, or line of credit, it's important for you to know that the debt will be attached to your home. That means that you may be at risk of losing your home if you happen to fall behind on your loan payments. To protect your biggest asset, make sure you can afford the additional monthly payments before you apply for a home equity loan or line of credit. The best way to do that is to create a complete monthly budget of all your expenses. This will help you determine how much money you can safely—and comfortably—afford to borrow.
For more information on applying for a home equity loan, contact a lender like General Electric Credit Union.