Equity Loans For Homes

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A house is the single biggest asset that most people have and for the majority of Americans their homes represent over 75% of their total assets. Many people see their home as a sign that they have made it financially.As you pay down your mortgage and as real estate price increase in your area, you increase your home’s equity. This is basically the amount of the house that you own free and clear without any encumbrances. This equity can be used as collateral to secure a monetary loan, called a home equity line of credit. This can be a great way to secure a loan for a low interest rate since the lender with have the assurance of a claim on your home if you do not repay the loan.A good way to increase the value of your home is to use your equity to take out a home improvement loan. This is a no lose situation. The money you take out in the form of a loan will go right back into the house, increasing the home’s value and thus your equity. The most lucrative improvements in a home are those made to the bathroom and the kitchen, but other improvements are also worth the investment. Check with an appraiser to find out what improvements will do the most to increase the value of your home.The amount of money you can take out in the form of a home equity loan is determined by a pretty standard formula. The lender will take a percentage of the homes appraised value. To determine the loan amount, they will subtract that percentage from the amount you still owe on your mortgage. If you have owned you home for a few years and have enjoyed a bit of appreciation, the loan amount can be quite substantial.The loan is not totally based on you equity and the home’s value. Factors such as your credit history, credit score and current employment status also play a part. Though you’ll still need a solid credit rating to get the best interest rate, your credit is not as important as it was when you initially secured the mortgage.These loans usually have a much shorter repayment period than your original mortgage. The most common repayment period is ten years. Once the period is up, you can often renew the line of credit for another period, depending on the current value of the home. If you were consistent in repaying the loan, your credit rating will have risen and a new line of credit can be secured for a lower rate.If your home needs a few improvements and you can afford to finance them yourself, you can slowly increase the value of the home. Once you have done all the little things you can do to improve the house, you can then take out the home equity loan to make bigger improvements. At this point you should have increased the home’s value and will be able to take out a larger line of credit.

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