Home Equity Loans

Home Equity Lenders

One of the benefits of home ownership is building equity. Your home equity is how much your property is worth compared with how much you owe on any mortgage for it. Your home's equity can be a valuable asset that you could borrow against with a home equity loan.

Home equity loans can cover large expenses such as home repairs, home improvements and college tuition, or help you purchase a second home or consolidate high-interest debt. In those scenarios, a home equity loan may be a good solution, but there are also risks involved. Before you take out a home equity loan, understand how they work, what they cost, how to get one and how to find the best lender for your needs.

The Best Home Equity Lenders of 2020

U.S. News evaluated leading home equity lenders based on product availability, customer satisfaction ratings and loan terms. As each consumer's needs are unique, U.S. News recommends top home equity lenders to meet different needs, such as lenders that could be a good choice for consumers with fair credit, or offer top-notch customer service.
  • Bank of America: Best Lender for HELOC With No Annual Fee
  • Chase: Best Lender for Adjustable-Rate Mortgages
  • Discover: Best Lender With Zero Cash Due At Closing
  • Flagstar Bank: Best Lender for Loans Up to $3 Million
  • Guild Mortgage Co.: Best Lender for Online Mortgages
  • loanDepot: Best Lender for a Lifetime Guarantee With Waived Lender Fees On Any Future Finances
  • NBKC Bank: Best Lender for $5,000 Close On Time Guarantee
  • Spring EQ: Best Lender for Financing Up to 100% of Your Home's Appraised Value
  • Triumph Bank: Best Lender for Online Rate Quotes and Application

Best Lender for HELOC With No Annual Fee

A major financial institution serving homeowners nationwide, Bank of America has good customer satisfaction ratings. The bank has an A+ Better Business Bureau rating and a J.D. Power rating of four, which is better than most. Highlights:

  • Mortgage types offered: Conventional, VA, FHA, refinance, home equity
  • Minimum FICO score: 620
  • Maximum loan-to-value ratio: 100%
  • Maximum debt-to-income ratio: 55%
  • Loan amounts: Up to $5,000,000
  • Total closing costs: Varies
  • J.D. Power overall satisfaction rating: Four out of five
Best Lender for Adjustable-Rate Mortgages
Chase Bank is a major financial institution with several mortgage options, including adjustable-rate mortgages. Borrowers can choose from 5/1, 7/1 and 10/1 ARMs. Highlights:
  • Mortgage types offered: Conventional, jumbo, ARM, VA, FHA
  • Minimum FICO credit score: 620
  • Maximum debt-to-income ratio: 50%
  • J.D. Power satisfaction rating: Three out of five
Best Lender With Zero Cash Due At Closing
Discover offers personal loans for debt consolidation, home improvement and major purchases. Loan terms from three to seven years are available. Highlights:
  • Minimum FICO credit score: 620
  • Maximum debt-to-income ratio: 43%
  • Maximum combined loan-to-value ratio: 70%-95% of the property value depending on credit, lien position, and loan amount; 70%-80% in Texas
  • J.D. Power satisfaction rating: Not rated
Best Lender for Loans Up to $3 Million
Flagstar offers banking and loan products to borrowers in all 50 states. Borrowers can obtain mortgage and home equity products including conventional loans, FHA loans, VA loans, ARM loans, USDA loans, and home equity loans and lines of credit. Highlights
  • Mortgage types offered: Conventional, Home equity loans, Home equity line of credit, ARM, FHA, VA, USDA, Refinance, and First-time homebuyer program
  • Minimum FICO score: 500
  • Max LTV: N/A
  • Max DTI: N/A
  • Closing costs: 2% to 5%
  • Equity required: N/A
  • J.D. Power satisfaction rating: Two out of five
Best Lender for Online Mortgages

Guild Mortgage serves homebuyers nationwide with multiple mortgage options. Mortgage shoppers can choose from conventional or agency loans with this lender, which has an A+ BBB rating and a four out of five J.D. Power satisfaction rating. Highlights

  • Mortgage types offered: Conventional, FHA, VA, USDA, ARM, Home equity loans, Refinancing (conventional), Refinancing (FHA), Refinancing (VA), Refinancing (USDA), First-time homebuyer program, Jumbo, renovation, expanded (non-qm)
  • Minimum FICO credit score: 620
  • Maximum debt-to-income ratio: 50%
  • J.D. Power satisfaction rating: Four out of five
Best Lender for a Lifetime Guarantee With Waived Lender Fees On Any Future Finances

LoanDepot was established in 2010 and since then has financed more than $70 billion in mortgages. It offers FHA, conventional and other mortgage options. Borrowers may qualify for a loan with a FICO credit score as low as 580. Highlights:
  • Mortgage types offered: Conventional, FHA, VA, ARM, Refinancing (conventional), Refinancing (FHA), Refinancing (VA), Home equity loans
  • Minimum FICO credit score: 500 with conditions
  • Maximum debt-to-income ratio: 43% for FHA
  • Maximum combined loan-to-value ratio: 90%
  • J.D. Power satisfaction rating: Four out of five
Best Lender for $5,000 Close On Time Guarantee
NBKC Bank is a Kansas-based mortgage lender. It originates home loans in all 50 states. Highlights
  • Mortgage types offered: Conventional, FHA, VA, ARM, Home equity loans, Home equity lines of credit, Refinancing (FHA), Refinancing (VA) and Refinancing (Refi Plus)
  • Minimum FICO score: N/A
  • Max LTV: 85%
  • Max DTI: N/A
  • Closing costs: N/A
  • Equity required: N/A
  • J.D. Power satisfaction rating: N/A
Best Lender for Financing Up to 100% of Your Home's Appraised Value

Spring EQ is a Philadelphia-based home equity lender. Home equity loans are available in more than 30 states and the District of Columbia, and Spring EQ has plans to expand into more. Highlights
  • Mortgage types offered: Home Equity
  • Minimum FICO score: N/A
  • Max LTV: 100%
  • Max DTI: N/A
  • Closing costs: N/A
  • Equity required: N/A
  • J.D. Power satisfaction rating: N/A 
Best Lender for Online Rate Quotes and Application

Triumph Bank is a Tennessee-based community bank offering direct home loans in 39 states. In addition to conventional mortgage financing, Triumph Bank also offers a variety of government-backed home loan options. Highlights
  • Mortgage types offered: Conventional, FHA, VA, USDA, The Elite Rate Mortgage (TERM), Triumph 97, Jumbo, Custom Term Mortgages, Home equity loans, Home Equity line of credit, and Refinancing (Cash out)
  • Minimum FICO score: N/A
  • Max LTV: 97.75%
  • Max DTI: N/A
  • Closing costs: N/A
  • Equity required: N/A
  • J.D. Power satisfaction rating: N/A Best
  • online rate quotes and application
See full profile

How Do Home Equity Loans Work?

Home equity loans, also known as second mortgages, borrow against the value of the equity in your home. Applying for a home equity loan can be similar to the process of applying for an original mortgage. You'll typically submit an application with your current mortgage statement, property tax bill and proof of income. You'll then need a home appraisal, usually with assistance from your lender. Once approved, you can borrow up to the amount you're approved for, using the equity in your home as collateral. 

You receive a lump sum for the loan amount and repay the loan with regular payments for the loan term. Most home equity loans offer fixed interest rates, meaning that the interest rate stays the same even if market conditions change. If you don't repay the loan as stated in the terms of your agreement, you risk defaulting on your loan, and your lender may foreclose on your home.

How Much Equity Can You Borrow?

The specific amount you'll be approved for depends on your credit history, income and home's market value. Lenders each have a certain set of criteria to determine your loan-to-value ratio, which is how much of your equity you can borrow compared to your home's market value. According to the Federal Trade Commission, the maximum loan approval amount is usually 85% of your home's value, factoring in your existing mortgage.

Let's say your home is currently valued at $200,000, and you still have $150,000 left on your existing mortgage. If a lender approves 85%, that means you can borrow up to a total of $170,000, minus the $150,000 you have left on your existing mortgage, meaning you can borrow as much as $20,000.

What Are Home Equity Loan Benefits and Drawbacks?

Home equity loans can offer low interest rates and fixed payments, but they aren't without risk.
Fixed payments. Unlike a credit card or variable-rate personal loan, home equity loans typically offer a fixed interest rate with predictable payments.

Lower interest rates. Home equity loans usually have lower interest rates than credit cards and other types of unsecured debt. Because your home acts as collateral for the loan, lenders take on less risk and may be more willing to offer lower interest rates.
Tax deductions. Limited tax deductions are available for home equity loans, such as if you use the loan to complete capital improvements. It's best to consult a tax professional to figure out your exact situation.
Your equity is lowered. It's no longer equity when you use it to secure a loan. Your loan amount is subtracted from the home equity you've built. Home equity loans may not be a good fit for those who don't want to tie up their equity for a five- to 15-year term or want the option to take out money multiple times like you can with a home equity line of credit.

Risk of foreclosure. If you don't make the payment schedule required by your lender, you risk defaulting on the loan. The lender can foreclose on your house.

Potentially higher costs. Even with a lower interest rate, a home equity loan could be a long-term loan for a short-term expense. If you could pay off an expense within a few years, it doesn't make sense to pay interest on a home equity loan for up to 15 years.

Immediate payment upon home sale. Your loan needs to be repaid immediately if you sell your house. If you used the money to make home improvements that increase your home's value, that might cover the payment. However, if your home's value remained the same or decreased, you could find yourself with a large bill.

Strict requirements. You will most likely need a good credit score in addition to solid proof of income and at least 20% home equity to qualify for a loan. According to credit bureau Experian, you most likely need a FICO credit score of at least 680 to qualify for a home equity loan..
What Are Alternatives to Home Equity Loans?

Even though a home equity loan can be a great way to borrow money, it not be the right fit for everyone. 

"A home equity loan may not make sense if you're not planning on using the entire amount right away," says Buddy Broome, an independent civil litigation attorney and real estate investor. "For example, if you want a consistent cash flow stream or don't want to borrow a huge sum of money at once, you may want to look at other options." 

Other types of home equity financing also use your home as collateral but work differently in terms of how you receive the loan amount.

HELOC. A home equity line of credit, or HELOC, is a type of home equity loan that works similar to a credit card. You're preapproved for a certain amount, which is a revolving line of credit. You're allowed to borrow as much as you need as long as you don't go over your limit. Like a home equity loan, HELOCs use your home as collateral, and the interest you pay may be tax deductible. However, HELOCs tend to have variable interest rates, which means that your rate can fluctuate for the duration of your loan. HELOCs also have a draw period where you may make interest-only payments during that time then an additional repayment period afterward.

Cash-out refinancing. A cash-out refinance is a new loan that draws money out of your equity while refinancing your mortgage. When you're approved, your lender pays off your existing mortgage and gives you the difference between the payoff amount and your new loan amount in cash. 

Reverse mortgage. Reverse mortgages are for homeowners 62 and older, and the homeowner receives monthly payments from the lender. Over time, the loan amount increases, and your home equity declines. You or your estate pay the loan when you sell the house, move out or pass away.

Are You Eligible for a Home Equity Loan?

Each lender is different in terms of what it uses to approve a home equity loan. Typically, lenders look at your credit score, your debt-to-income ratio and the available equity in your home.

Good credit is usually a requirement for home equity loan approval. Experian reports you may be approved for a home equity loan with a score as low as 660, but you may be subject to a higher interest rate and more scrutiny of your other financial factors like your debt-to-income ratio than borrowers with good credit.
If your credit score isn't where it needs to be for a home equity loan with good terms, you can take steps to improve it, such as paying down balances and resolving collection accounts.

Your debt-to-income ratio is equal to all your current monthly debt payments divided by your monthly gross income. Lenders use it to assess your ability to repay any additional debt. For example, if your gross income is $5,000, and your monthly debt is $800 for a mortgage payment and $300 for an auto loan payment ($1,100), you have a 22% debt-to-income ratio.

The lower your debt-to-income ratio is, the higher chance you'll be approved. The Consumer Financial Protection Bureau recommends that companies approve loans for consumers with a debt-to-income ratio no higher than 43%, but some lenders will approve loans for borrowers with debt-to-income ratios of up to 50%, especially if other qualifying factors such as your credit score or equity meet or exceed their requirements. 

You need to have home equity in order to tap into it. Your level of equity helps lenders determine how much to lend you and whether you're required to purchase private mortgage insurance, or PMI. You usually avoid paying PMI if you have at least 20% equity remaining after the loan.

Lenders will also take a look at your loan-to-value ratio, which is your home's value compared with what you currently owe on it. For example, if the market value of your home is $300,000 and you owe $210,000, your LTV is 70%. Generally, lenders will approve loans with a maximum loan-to-value ratio of 80% to 85%, which means you'll need to retain 15% to 20% equity.

Even if you don't meet some of the above requirements, you may still qualify for a home equity loan. If you don't have a great credit score, for example, you may still be approved for a loan if you have a lot of home equity and a low debt-to-income ratio. Some lenders may take your income history into consideration if you are over a certain income threshold or have a solid work history.

If approved, you can typically expect a higher interest rate if you have a lower credit score. According to myFICO, a 10-year home equity loan could have an APR of 5.75% for someone whose FICO credit score is 740 and above, compared with a 10.08% APR for a FICO score of 620 to 639.

How Can You Evaluate Your Home's Equity?

If you're considering a home equity loan, you should ballpark your home equity before you start considering lenders. Though your lender will likely require an appraisal before you're approved, having a general idea of your home's value (and how much of that value is your equity) can be helpful. You'll know about how much you can expect to get from your loan or if you have enough equity to be approved for a home equity loan at all.

You can estimate your home's value using popular websites such as Zillow and Redfin. They use data from millions of home tax appraisal and sales records to estimate the current value of properties. You can also consult a real estate agent to find updated information on comparable sales in your neighborhood to see how much your house may be worth.
Compare your home's estimated value to your mortgage balance to determine your equity. For example, if your current mortgage balance is $125,000 and the current market value of your home is $200,000, your home equity is $75,000.

Calculate Your Loan-to-Value Ratio

To calculate your combined loan-to-value ratio, add what you owe on your current mortgage and the amount of the desired loan. You then divide this number by your home's current value. 

For example, if your mortgage balance is $110,000 and you want to take out a $50,000 home equity loan, your combined loan amount is $160,000. If your home's value is $200,000, your combined loan-to-value ratio is 80%. 

The fastest way to improve your loan-to-value ratio is to lower your mortgage balance. This happens naturally over time, but you can make extra payments to increase your equity. Consider taking any extra income, such as a tax refund, and putting it toward your mortgage. Making low-cost repairs and improvements can increase your home's value during an appraisal, too.

What Are the Costs of a Home Equity Loan?

Interest is the largest cost of most home equity loans. Home equity loan rates are usually based on the current prime rate, which is a benchmark for lenders to set their rates. Generally speaking, your lender will give you a lower rate the longer your loan term is and the higher amount of equity you have in your home. In addition to the prime rate, lenders consider your mortgage balance, loan amount, credit history, current home value and income to determine your interest rate.

However, the interest on a home equity loan is just one of the costs involved with taking out a home equity loan. Home equity loan fees may be similar or identical to the fees you paid for your original mortgage. You should expect to pay about 2% to 5% of the loan amount in fees and closing costs. Even if a lender covers some closing costs, you may have to pay for expenses such as the credit check, appraisals and filing paperwork.
"Homeowners tend to forget that it costs money to take out a loan," says Dan Green, founder and CEO of Growella, a website that helps millennials learn about real estate. "If you're asked to provide additional paperwork, those amounts can add up."

How Can You Choose the Best Home Equity Lender?

  • Eligibility requirements
  • Loan limits
  • Interest rates
  • Fees
  • Customer satisfaction
Knowing whether you're likely to qualify for a home equity loan with a particular lender can save you time and money. Some banks charge application fees, which can be a waste if you apply for loans you most likely won't get approved for. Make sure to apply with lenders that are most likely to approve you for a loan.

Before doing your research, decide how much you plan to borrow. Some banks have minimum amounts you need to borrow, so don't apply with lenders whose minimums you cannot meet. Most lenders have a maximum loan-to-value amount as well, so you don't want to choose one that cannot loan you enough.

The annual percentage rate, or APR, indicates the cost of the loan's interest. The lower the rate, the less the interest costs you. The loan's APR is based on the interest rate, and factors in discount points and closing fees. Most home equity loans have fixed interest rates, so your rate stays the same over the life of the loan. This can make it easier to plan for the future, since your monthly payments don't change.

Though rare, some home equity loans have variable interest rates. A variable rate means that the interest rate in a loan can fluctuate over time if the benchmark, such as the prime rate, changes. The advantage is that if the benchmark rate goes down, your interest rate and payment are lowered. However, if the benchmark rate goes up, you will need to make higher payments to cover the higher interest.

When doing your research, find out if a home equity loan has a fixed or variable APR. Eric Rosenberg, a personal finance freelance writer and former bank manager of FirstBank of Colorado whose responsibilities included approving mortgage and home equity loans, suggests homeowners look at how soon they want to pay back the loan before deciding.

"Fixed rates are best for people who want to take out a long-term loan and always know what they need to pay," he says. "Variable rates are best for those who want to pay off their loan quickly or believe that interest rates will go down."

Rosenberg also mentions that some variable APR loans have introductory rates that are usually lower than a fixed-rate loan. If you can pay off the loan within the introductory period, then a variable rate may save you money.

When you're considering different home equity loans, make sure you know what fees you'll need to pay. They can add up. But don't let that be the only determining factor. A lender may have no closing costs but have a high interest rate, and that could cost you more in the long run compared with a lender that has closing costs and a lower interest rate.

Customer satisfaction ratings can indicate the level of service you should expect from a home equity lender. Check the Better Business Bureau and J.D. Power studies, including the 2018 U.S. Primary Mortgage Origination Satisfaction Study and 2018 U.S. Retail Banking Satisfaction Study, to learn how well lenders deliver on customer satisfaction for borrowers. While these two studies don't specifically address home equity loans, they look at most of the same lenders and measure factors relevant to home equity transactions. Both studies rate lenders and banks on a scale of two to five, with five being the highest rating.

What Are Some Home Equity Loan Warning Signs?

Keep an eye out for harmful practices when shopping for a loan because you could lose your home. Make sure you do your due diligence and execute sound judgement on your loan decisions.
  • Loan flipping. Loan flipping is where a company urges borrowers to refinance the same loan multiple times. The homeowner ends up paying excessive fees, high interest rates and prepayment penalties.
  • Insurance packing. This is a term for when a lender inserts an insurance policy into the borrower's' home equity loan without their knowledge or tells them that it is a requirement for a loan. For example, lenders may add in credit insurance, which protects the loan if you die, lose your job or become ill or injured and can't pay back the loan. You might want that coverage, but the decision to purchase it should be yours, not the lender's.
  • Bait and switch. A lender changes the terms of the loan, perhaps raising the interest rate, right before you close.
  • Equity stripping. Lenders encourage you to lie about your income or approve you for a loan you may not be able to afford. By taking on high monthly payments, you are likely to default on your loan, which would give the lender the right to repossess your home. Some companies may also try to persuade you to sign over the deed on your home with the false promise of giving you better terms.
  • The "home improvement" loan scam. In this scenario, a contractor offers to make home improvements and promises to help you find financing through a lender. Once the work starts, you're coerced into signing for a home equity loan with high rates and fees. Often, the contractor does shoddy work or doesn't finish the project after taking payment.
Advertising Disclosure: Some of the loan offers on this site are from companies who are advertising clients of U.S. News. Advertising considerations may impact where offers appear on the site but do not affect any editorial decisions, such as which loan products we write about and how we evaluate them. This site does not include all loan companies or all loan offers available in the marketplace.

source: https://loans.usnews.com/home-equity-lenders

1 komentar untuk "Home Equity Loans"

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