It’s no secret - owning real estate is a great investment. That’s why more and more people are getting into real estate investing. However, buying real estate for sale is not like buying a shirt, there is a huge financial commitment that often takes years to meet. While there is usually a great financial reward from buying a home for sale due to its property appreciation, you have to sell your home to reap these benefits. Considering how long it takes to pay off a mortgage, it is not surprising that many homeowners find themselves in a bit of a financial strain at times. Whether it’s medical bills, a college education, a wedding, or home renovations, there are times when a homeowner is going to need some extra money to pay for something big and unexpected. That’s OK though as more and more homeowners are using their homes as a financial advantage and that is through home equity loans. Often referred to as a second mortgage, a home equity loan is a type of loan in which a homeowner uses their home as collateral.

 

Generally, the home equity is the difference between a home’s market price and the owner’s mortgage loan debt. This difference is given as a home equity loan in which the home is used as security by the lender as security for payment of the loan. Much like obtaining a home mortgage, there are some financial barriers for a person who is seeking a home equity loan to clear. Unfortunately, bad credit home equity loans tend to be rare. Most home equity loan lenders require that candidates have a good to excellent credit history. Additionally, since you are using your home as financial collateral, most home equity loan lenders prefer that there is a reasonable loan to housing value ratio. If you are a candidate for a home equity loan, here is some important information that you could use. Generally speaking, there are two types of home equity loans – a closed end home equity loan and an open end home equity loan.

 

A closed end home equity loan refers to a one time loan, in which the borrowers receives a certain amount of money without the option of further borrowing. It is pretty common for borrowers to be able to borrow up to the full value of the appraised value of their home. However, there are some instances where they are able to receive higher than the value of their home in what are known as over-equity loans. An open end home equity loan or a home equity line of credit (HELOC) refers to the establishment of a credit line that the borrower is able to choose when and how often they borrow in relation to the value of their home. At the inception of the loan, the homeowner sets a limit to how much they can borrow in total and they are able to use this line of credit for up to 30 years at variable home equity loan rates. Depending on your financial need, an open end home equity loan or a close end home equity loan may be the right plan for you!