Home Loans: Home EquityYou have built up equity in your home and would like to be able to tap into that equity to pay unforeseen bills, take care of emergencies or maybe just have funds available whenever you’re ready to purchase a car or boat without having to wait through any loan application or approval process. Here are some important things you should know about the loan process for a home equity loan:

Mortgage. The money you borrow will be “secured” by your home. If your property is already mortgaged then this line of credit will be a second mortgage. This means that, as is the case for your existing (which is the “first”) mortgage, the home will serve as collateral for the benefit of the lender. Either of your lender(s) will be able to have your home sold in the event of loan default.

Application Forms. Your lender is required by various laws to provide you certain forms and disclosures in the loan process. These forms will show you information such as how much you are borrowing, the length of the loan, the interest rate and closing costs. You will be asked by your lender to complete a loan application and supporting forms and to provide information such as paystubs. Typically the interest rate on a home equity line of credit will be subject to change over the life of the loan, depending on changes in the underlying index to which the loan is tied. This index could be, for example, the 1-year London Interbank Offered Rate (“LIBOR”).

Credit Score. In determining whether to approve your loan, your lender will check your credit score to see if you have good credit. If you don’t have good credit, the lender might still be able to offer you a home equity line of credit under an alternative credit program.

Appraisal. Often the lender will also require that the home be appraised to see how much it is worth. Your lender will set the maximum it will loan you as some percentage of the appraised value.

Closing. When your home loan process is ready to be finished, you will have a meeting for signing your final documents. This meeting will usually happen at a title company or attorney’s office, or could be at your lender’s office. Depending on the loan terms, you might have to bring funds to cover closing costs. After you have completed the closing, the mortgage will be recorded with the appropriate local governmental body and you will then be able to draw funds from it.

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