Home equity loans allow you to use the equity you’ve built up in your home as collateral for another loan. By getting a home equity loan, you can finance remodeling or pay off other large debts. As an added benefit, the interest may be tax deductible (a tax professional could help you in making this determination.)
Great, you may be thinking, but you may not know how to get a home equity loan in PA. Use this handy guide to walk you through the steps you generally take to secure your home equity loan.
First, here are a few details about the two types of loans that are secured by your home’s equity:
A home equity loan, or real estate equity loan, is a lump sum you receive from your lender. You make fixed monthly payments on this loan over a fixed term until you pay it off.
A home equity line of credit (HELOC) is almost like a credit card. You have a fixed amount of equity you can draw on, and every time you take money out (also known as advancing your line), it draws from your total limit. Your repayment amount depends on how much money you’ve advanced. HELOCs usually have a variable rate.
You may have heard people refer to home equity loans as “second mortgages.” This is because they’re typically another lien on your home, subordinate to your first mortgage. But the process to get a home equity loan differs from a mortgage.
The first step in the process of obtaining a home equity loan is to ensure you qualify for a loan. You need to figure out how much equity you have in your home. Although your lender will make the final calculations, you should have a basic understanding of how this figure is derived. To determine your equity, your lender will subtract how much you still owe on your home from the value of your home. Your home’s value is determined by the lender.
For instance, if a person has $50,000 left on their home loan, and the home appraises at $100,000, the homeowner has $50,000 in equity to potentially draw on.
Another concept to understand is your loan-to-value (LTV) ratio). A lender will allow you to borrow a percentage of the equity that is available. For example, if a homeowner wants a $20,000 loan, the equation would be: (20,000 + 50,000) / 100,000 = 70% LTV ratio.
At PSECU, we offer the convenience of applying for home equity loans online. There are no closing costs and no application fee.
We’ll run a credit check, which indicates whether you pay your current bills on time and handle your debt responsibly. If you have a lower credit score, it may impact whether you’re approved for an equity loan. In addition, we run a title search to see what debts or liens already exist on your property.
We determine the home’s value, which impacts your LTV ratio. After this step, you’ll learn if your home equity loan has been approved. Following approval, you’ll still have a few steps to complete to secure your loan or HELOC.
When signing for your equity loan with any lender make sure you understand:
The term of the loan
The interest rate, and if it’s variable, what it’s based on
When your first payment is due
How to make your monthly payments; i.e., will you receive a bill in the mail or should you pay online?
Are you ready to make the equity you’ve built in your Pennsylvania-based home work for you? We offer low rates and an easy application process for both home equity loans and HELOCs. Contact us to see if you qualify for a home equity loan.
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