Home Equity Line of Credit
A home equity credit line lets you use the equity in your home for personal use. It is a loan that lets you access your equity by writing checks on a home equity account. You can use as much or as little of the equity as you want.
How much equity do I have?
You have equity if your home is worth more than you owe on it. For example, if your home is worth $250,000 and you owe $150,000 on it, you have $100,000 in home equity.
What is the loan process?
To qualify, you must have equity in your home. Here’s what happens after you contact a lender:
- The lender will send an appraiser to determine your home’s value.
- The lender will determine the maximum loan amount based on the equity in your home.
- You will sign a contract and a Deed of Trust will be recorded against your home. This means that if you don’t make the payments, your home can be sold.
What are the costs?
When you apply for a home equity line of credit, you pay many of the same fees you did with your original home mortgage. These fees can be very costly, especially if you end up borrowing little from your home equity line of credit. Loan charges vary from lender to lender and include fees for:
- Title Report
- Messenger Services
- Credit Report
- Document Notary
- Document Preparation
- Annual Charges
Most home equity credit lines have variable interest rates. Variable rates may offer lower monthly payments at first, but the payments do change and can be much higher.
Fixed interest rates require higher payments at the beginning than variable rates, but offer stable monthly payments over the life of the loan.
Things to consider
Your home will be used as collateral and a Deed of Trust will be recorded. This means that if you don’t pay back your loan, the lender can sell your home.
If you want the home equity credit line removed from your property title, you must first pay back the money you borrowed. The lender must then record a full reconveyance.
Payments on the equity line of credit will vary depending on the amount you use. The more you use, the higher your monthly payment.
If you sell your home, you must repay the credit line amount you have used.
There may be tax advantages when using a home equity line of credit. Check with your tax advisor for more information.
Other loan options
You can borrow money without using your home as collateral. Credit cards, unsecured loans and loans for a car or school tuition are also available. These loans do not put your home at risk if you are unable to make the payments.
3-day right to cancel
You have three days to cancel the transaction for any reason. You must cancel in writing. However, the loan fees and charges will not be refunded.
How do I find a lender?
Banks, mortgage companies and credit unions are the most common lenders. Here are some tips for finding a lender:
- Contact three or more lenders. Look for a loan with the lowest interest rate, points and fees.
- Be sure the lender is licensed and in good standing. Call the Department of Corporations at (866) 275-2677 or the Bureau of Real Estate at (213) 620-2072.