What do I need to know about a home equity loan?

Question

Do I have to have good credit to be approved for one? How do they work?

Answer 1

You generally need a 680 score or above, and of course enough equity! Keep in mind it's reported as revolving, not a fixed loan, and this is highly weighted in FICO scoring. Most banks will lend 80% of your homes value...which means if you have a home worth 100k, you can borrow 80k less any mortgages. Some will go higher.

You usually can draw on the line for 10 years, and pay it back in 15. Let's say you have a HELOC for 20k. You can write a check for 10k to put in a new addition on your home, and a year later write a check for 10k to buy a car. Some give you debit cards as well to access your account.

Answer 2

You have to have a home.

Whatever amount you've paid down on your mortgage loan from the original price, is what is available to you for equity.

If you own your home outright (no lien with the bank), then the entire value of your home is available as equity.

You don't have to have "good" credit to get one, but it certainly helps.

If you default on the loan, however, the home will be taken from you. So, don't take the loan out unless you have a means of paying it back, and don't take an equity loan out for frivolous reasons.

Good Luck

Answer 3

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