VIDEO: Home Equity Loans: What You Need to Know

Chances are you own more of your home than you did a year ago. With home equity loans you are putting your rising home equity to work by taking a second mortgage against your house to renovate and make improvements, for example.

It can pay to refinance if after reappraising your home the borrower learns that equity has been built. Lenders usually require 20% equity in the borrowers property; should the borrower meet the 20% they will need to refinance with either an FHA loan or a private mortgage insurance.

As always, credit scores should be above 680. Otherwise, it is recommended borrowers go with the FHA, which has less stringent underwriting guidelines.

Why a home equity loan?

Borrowers are often looking for help funding renovations. The market for home-equity loans and lines of credit has loosened up and now may be the right time for your situation. The real estate market is slowing seeing prices rise again, giving borrowers confidence to embark on home improvement.

Spending money on your home is always a nerve-racking thing to do. Lenders are now stricter than ever about lending and will want to see the borrower demonstrate they are serious and can manage their loan. Be prepared to do a lot of paperwork and have your digital documents in order.

So start shopping your current bank, as well as getting quotes from at least three other lending sources, to secure the best deal for home equity loan.

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