How Can I Calculate How Much I Can Take Out On A Home Equity Loan?
By Eric GoodwillSo your asking yourself, “How can I calculate how much I can take out on a home equity loan?” That’s a good question and as you’ll see, the answers are pretty straightforward.
More often than not, an individual’s home is the person’s most valuable asset. As such, many homeowners today use their home to aquire home equity credit lines to be used for major family expenses such as home improvements, continued education, major medical bills and similar big-ticket items. In its simplist form, a home equity loan is a line of credit in which your home serves as collateral. That said, there are winning strategies to calculate how much I can take out on a home equity loan. So read on and consider which approach to aquiring a home equity loan is right for you.
Do the Math
A home equity loan is not a quick fix., so your first strategy is too know what you’re getting into. Many lenders establish a home owner’s credit limit on a home equity line by using simple math: the lender takes a percentage (say, 75%) of the property (established earlier by an appraiser) and then subtracts from that amount the balance owed on the existing mortgage.
For example, if the appraised value of your home is $100,000.00, then 75% of the appraised value would be $75,000.00. Next, the lender subtracts the mortgage-balance owed. So let’s say you still owe $50,000.00 on your home. This leaves $25,000.00 as your potential line of credit ($75,000.00 – $50,000.00 = $25,000.00). Keep in mind that when the bank or lending institution works to establish your actual credit limit, they consider your ability to repay the loan. This is typically done by coss-checking your income, debts, and other financial obligations in addition to your credit history. It goes without saying (but we’ll say it anyway) that a clean credit history always works in your favor.
Time Limits
When asking yourself how to calculate how much I can take out on a home equity loan, you’ll want to consider several things. Many home equity plans set a specific time period during which the home owner can borrow money. When this period reaches it’s conclusion, say 10 years, the home owner may be allowed to renew their credit line. Thus, strategy number 2 is to see if your home equity loan plan allows for renewals. If not, you will not be able to borrow additional money once the period has ended.
Once approved for a home equity line of credit, the home owner should have the flexibility to their maximum equity loan at their convenience. There may be other limitations on how you use the credit so ask in advance. .
Best Strategy
You best plan of attack when asking yourself how to calculate how much I can take out on a home equity loan is common sense: in other words, investigate more than one lender and see which home equity plan is made for you and your partilcular needs. Read the fine print of you potential credit agreement. Understand what is being required of you and what is being guaranteed (as opposed to promised) by the lending institution including annual percentage rate and any other realted costs.
Which leads to your final strategy: Ask questions because it’s a little late to reconsider once you put your signature on a binding document.
Related posts:
- What Is The Difference Between A Home Equity Loan And A Line Of Credit?
- Should I Get A Home Equity Loan Or Line Of Credit?
- What Is A Closed End Home Equity Loan?
- What Is A Home Equity Loan?
- Are Mortgage Rates Different On A Home Equity Loan?