Owning a home has its benefits, and the home equity you build over time is one of the greatest assets you have. Should you find yourself with mounting debt, a home equity loan can be a great way for you to find your way to a better credit rating. However, a home equity loan or line of credit is to be used wisely.
1. Take a Look at the Credit
If you wince when you take a look at your credit rating, a home equity line of credit or loan may be the way to help you build back up your credit. Even if you have poor credit, it is much easier to quality for a home equity loan. Yet, you also need to use the money wisely.
2. Similar to a Bank Loan
Home equity loans are similar to traditional bank loans. What makes them different is that the collateral for your home equity loan is your home and property, so it is your home that ultimately protects your loans. The fact that your home functions as collateral is why it is so important to be wise with your home equity loans. If you borrow too much money with your home equity loan and then you cannot repay it, you can lose your home.
3. Determine Your Home's Worth
If you do believe that a home equity loan is the route to take in order to get out of debt, you will then need to determine how much your home is worth. For quoting purposes, you only need a rough estimate. A realtor or appraiser can give you a professional opinion as to how much your home is worth, then you will be able to determine how much equity you have in your home and how much you are eligible to borrow. Remember to get a few quotes, as they will give you a better idea of your home�s real value and not some inflated value.
Money Saving Tip 3
A good way to save money on your monthly payments, even when you refinance your mortgage, is to pay extra points. If you pay extra points you can possibly get a lower rate on refinancing your
4. Pick Your Equity
Once you determine the amount available for you to borrow, you then want to decide what type of home equity loan you desire. Your options will probably be either a home equity line of credit or closed loan. A line of credit is similar to a credit card with a large credit limit. However, if you are looking for a home equity loan to pay off credit card debt, you may want to avoid the temptation of such a large credit limit. The other option of a closed end loan may be more desirable, as it gives you a specific amount of time to pay off the loan and functions more like a traditional loan.
5. Length of Loan
When you know how much you want to borrow and how you want to borrow the money, you can then determine the length of your loan. Play with different time frames to find a payment that will work best with your budget. Then shop around for different home equity loan companies. There are a number of financial institutions waiting to offer you home equity loans, so you want to find the one that will fit best with your financial situation.
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