Home Ownership

How to Access Equity in Your Home

Couple discussing the best way for them to access their home equity

The home you own provides shelter, security and comfort for yourself and your family. Your home is also an investment that may provide a financial return with appreciation in price when you decide to sell it. In fact, your home may also be the biggest asset that you have. After building enough equity, you can decide to leverage it by taking out a home equity loan for debt consolidation, home improvement, education or other needs.

 

Follow these steps when you are ready to start the process to access your equity:

 

1 Determine your credit score and develop a credit management strategy.  Get an updated credit report (available for free once per year from the three credit agencies). Lenders use your credit rating to determine whether you’re approved for a loan and what interest rate they will offer you based on the credit risk they see in your financial profile. You need to know what your credit score is to find out where you stand in the eyes of potential lenders. Some financial companies, like Discover, offer free credit scores. Review the report and consult a potential lender for advice on how to approach debt consolidation

 

2 Determine your combined loan to value ratio (CLTV). Identify your current debt amount from loans and credit cards you want to pay off and add your planned cost for home improvement or other expenditures. This is your goal loan amount. Determine the market value of your home. A Zillow estimate can be a reasonable starting point.

 

Calculate the equity in your home as the market value minus the amount remaining on your mortgage. Calculate the CLTV by adding your current mortgage to your goal equity loan amount and then dividing by the market value. Discover Home Loans offers fixed loans from $35,000-$200,000 with less than 90% CLTV,  depending on your credit score.

 

3 Evaluate loan choices. Compare interest rates and monthly payments for full mortgage refinance, home equity loan and home equity line of credit options. A home equity loan can be a good choice for accessing a fixed amount of funds. A home equity line of credit (HELOC) establishes the availability of funds when you need them, with repayment beginning once you actually access the credit.

 

Compare the estimated monthly payment of your best choice to your financial situation to be sure you can manage the payments.

 

4 Select a lender. You can use your existing lender, but you may find that you can get a better deal from another bank or lender. Research as much as you can online before requesting quotes from a few reputable lenders. Be aware that potential lenders will access your credit report to determine the interest rate they will offer; each inquiry can have a small negative impact on your credit score.

Consider interest rates, length of loan, fees and sizes of monthly payment to get an “apples to apples” comparison. While fees vary by lender, with Discover Home Loans, there are no application fees, origination fees, and no cash is required at closing. Factor into your decision softer considerations like customer service and ease of doing business as well.

 

5 Complete an application. Work with your chosen lender to complete the application and provide all required documentation as quickly as possible. Follow through to be sure the loan process proceeds to funding.

 

6 Continue to manage debt wisely. Once your loan is in place, remember that any equity loan is secured by your home. That means you must keep up payments on time and in full to avoid problems with the loan that could lead to foreclosure.

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