A home equity loan lets you borrow a fixed amount, secured by the equity in your home, by receiving your money in one lump sum. You can use a home equity loan for a number of things. One common use is home improvement. Keep reading to learn how much you may be able to include in your home improvement project
How much can I borrow with a home equity loan?
The amount of equity you can borrow depends on the lender (Your equity is the difference between the market value of your home, or what it could sell for, and the amount you still owe on your mortgage). Your eligibility and interest rate will be determined by your personal financial situation and your credit score.
Lenders take into account your closed loan-to-value when determining loan amount. With Discover Home Equity Loans, you can borrow up to 90% CLTV (in some cases up to 95%, depending on your credit score). CLTV is your loan amount plus your mortgage balance, divided by your home value. For example, if you have a home with a market value of $300,000 and an outstanding mortgage of $150,000, you might expect to be able to borrow up to $120,000 ($120,000 plus $150,000, divided by $300,000 = 90% CLTV). If your credit score is good enough, you might be able to borrow up to $135,000 ($135,000 plus $150,00, divided by $300,000 = 95% CLTV).
Your lender may establish a financial cap for all home equity loans as well. Discover Home Equity Loans lends between $35,000-$150,000.
What kind of plan is needed for a home equity loan?
With a home equity loan, you’re increasing your financial risk related to your home. Be sure the loan amount you are taking can be repaid based on your budget plans.
If you plan to use your home equity loan for a home improvement project, you may want to have a project plan.
- Start with a list of musts and wants, and make the list as detailed as possible.
- Estimate costs on your own or with a contractor’s help, using realistic data.
- Add in anywhere between 20 and 25 percent contingency costs.
- Make sure the total scope of the project is manageable.
This upfront planning will help you request the appropriate funds for your needs. Without a plan, you could underestimate costs and run short of funds halfway through your project.
As you build your project plan and budget, be sure to include remodeling items that your contractor isn’t responsible for. Factor in items after construction is complete like new furniture, decorations, etc. You can include these purchases in your home equity loan.
With a detailed home improvement plan, you not only have a good upfront understanding of the total cost of the project, but you can also use the budget to verify that your project is on track. Whether you do the work yourself or hire a contractor, it’s important to make sure that the project is meeting your expectations. If you’re about to go over budget, you may need to stop and reevaluate whether any changes are needed to get you back on track for the remainder of the project.