Home equity loans allow a homeowner to borrow money by pledging the house as collateral. Borrowers who want to borrow a relatively large amount of money or who don’t have good credit often find the home equity loan to be attractive.
Advantages of Home Equity Loans
Home equity loans are attractive to borrowers for a few main reasons:
- They typically have a lower interest rate
- They are easier to qualify for if you have bad credit
- Payments on a home equity loan may be tax deductible
- Borrowers can get relatively large loans with this type of loan
Common Home Equity Loan Uses
Borrowers use home equity loans for some of life’s larger expenses, because homes tend to have a lot of value to borrow against.
For example, you find that a lot of borrowers want to
- Remodel or renovate the house
- Pay for a family member’s college education
- Finance the purchase of a second home
- Consolidate high-interest debts
Pitfalls of Home Equity Loans
Another common pitfall of home equity loans is that scammers have found plenty of ways to cheat homeowners out of their most valuable asset. Be sure that you know who you’re doing business with. If something smells fishy (like a high-pressure sales pitch or an inability to put things in writing), then take a step back and make sure the deal is legitimate.
How to Find the Best Home Equity Loans
Finding the best home equity loan can save you thousands of dollars – at least. In order to get the best loan, I recommend that you:
- Shop around. Try a variety of sources (banks, brokers, and credit unions)
- Manage your credit score and make sure your credit reports are accurate
- Ask your network of friends and family who they recommend
- Compare your offers to those found on websites and advertisements
From Justin Pritchard
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