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“Home equity loans” are not free money. These loans have to be repaid. The terms for a home equity loan vary. On average, lenders establish loan terms for five to ten years. If you borrow a small amount of money, you may be able to repay the loan quicker. Before getting a home equity loan, carefully review your finances. Can you afford a second mortgage? If not, avoid a home equity loan. Equity loans are secured by your home. If the lender does not receive payments for the loan, you may lose your home.

Some homeowners choose to wait at least two years before obtaining a home equity loan. During this time, the home value will increase substantially, allowing access to a larger cash amount. Of course, there is no set rule on how long you should wait before obtaining a home equity loan. In fact, some lenders will offer you a mortgage and home equity loan combo financing. In this situation, the market value of the home must exceed the sale price.

Before getting a “home equity loan”, check the current market value of your home. You can obtain this information by getting your home appraised, or conducting a comparative analysis of homes in your surrounding area. If you live in an area where home values increase very quickly, you may get a home equity loan soon after purchasing your home.

“Home equity loans” have slightly higher rates than traditional rate and term refinances because one is raising the original loan amount. Plus when one pulls cash out of a home or investment property this is a higher risk loan. Higher risk = slightly higher rate.

And in Texas you are limited to 80% of your home’s value. Meaning if your home is worth $200,000, the most your new loan could be is $160,000. If you owe 100K, you could take out 60K or up to 80%. home equity loan

Then there’s the 3% home equity rule: This means the total fees associated can’t exceed 3% of the loan amount. This mostly effects those with smaller home loan balances. For example, if your home is only worth 75,000 and we are limited to 80%-your loan could only be 60K. 3% of 60k is $1800. So if your title company charges $700 for the title policy and your appraiser charges $325 and the bank charges $500 to underwrite your loan it’s not hard to be over 3%. This would mean the mortgage company could only charge $275 to be under the 3% rule.

A regular “home equity loan” is one in which you apply for a loan based on the equity you have in your home. The loan works like most other loans. You are approved for an amount, you get an interest rate, and you have loan terms. The loan is paid to you in a lump sum, and you can do what you want with it. With a regular home equity loan, it is easier to get a fixed rate than it is with a home equity line of credit. A regular home equity loan works best when you know pretty much how much money you need. If you are planning on making an investment that should pay off well, or if you are planning on going on a cruise, a regular home equity loan might work best for you.

A home equity loan comparison necessarily considers a home equity line of credit. This type of home equity loan works more like a credit card. You are given a “limit” that you can borrow up to. You don’t have to borrow it all at once; you can do so as you have need. Even though it is possible to get a home equity line of credit with a fixed interest rate, it is harder to do than with a regular home equity loan. Home equity lines of credit are ideal for home improvement projects. This is because your rarely really know how much such things will cost beforehand. A home equity line of credit gives you the flexibility to take out what you need, as you need it.

No matter which type of “home equity loan” you choose to go with, you should consider your individual situation and needs. Do a home equity loan comparison to determine which would benefit you the most, and base your decision on that.