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Financial crises can occur in anyone's life, and that's the time when people start arranging money to deal with the situation. Thankfully, home equity loans or home equity lines of credit are the two options that help people make sound decisions in times of crisis. Home mortgage debt is one of Americans' primary sources of debt, and that's the reason why the U.S. mortgage industry is regarded as the largest industry in the world. However, people often get confused about which loan is the best for them. If you're one of those who are confused about home equity loans, this write-up is undoubtedly for you. Here you will learn about home equity loans (HEL) and home equity lines of credit (HELOC). We ensure that by the end of this article, you will better understand which loan is suitable for you.
Without much ado, let's get started.
Home equity loans - an overview
Also known as a second mortgage, a home equity loan is a debt that is secured by your home. With this loan, you receive a lump sum of money. Such loans come with a fixed interest rate and have a term of five, 10, and 15 years, etc. However, the interest rate you qualify for depends upon your credit score. These scores are generated from the information on your credit reports. After receiving the amount, you will have to pay back the principal and interest within the time outlined in the loan contract. Basically, the home equity loan payments are fixed and paid monthly.
Requirements for home equity loans
Applying for home equity and a residential loan can be lengthy, and approval is not guaranteed. Before providing a loan, lenders will thoroughly check your financial health to determine whether you qualify or not. The Maryland mortgage lenders will also examine your credit reports to verify your borrowing history and appraise your home to determine its market value. The factors that lenders consider when reviewing your application:
1. Home Equity
You must have a certain amount of equity established in your home before using it to secure a loan. The lender will appraise your home's market value as part of the application process, which will come at your expense.
2. Credit History
In order to qualify for most home equity loans, you will need to have pretty good credit to meet the requirements of Maryland mortgage lender guidelines.
3. Debt to income ratio
DTI ratio may help determine whether you qualify for a loan or not. The DTI ratio is calculated by dividing total monthly debt payments by gross monthly income.
Pros of HELOAN
A home equity loan is a great solution for borrowers as it offers the advantages mentioned below:
Home equity loans offer lower interest rates as your home is secured as collateral. This type of financing provides more money than personal loans or credit cards, which is useful when you want to make a one-time large purchase.
This type of loan provides greater flexibility than other loans and can be used for anything.
Such loans provide tax perks.
Home equity lines of credit - an intro
In this type of loan, a homeowner applies for an open line of credit and then borrows up to a fixed amount as required. You will have to pay interest on the amount you have borrowed. Basically, HELOC will open for a set of terms, often ten years. The best thing about HELOC is that you only have to pay interest on what you borrow.
Requirements for HELOC
The application of HELOC is quite similar to that of HELOAN. Here the lenders will evaluate the total market value of your home and will thoroughly review the financial history to check whether you qualify for the loan or not.
1. Home equity
Like HELOC, make sure you have equity built in your home before applying for HELOC. The borrowed amount will also depend upon the equity you have built over time.
2. Credit history
The Maryland mortgage lenders will check your credit and loan history thoroughly, which is very important in the loan approval process.
3. Debt-to-income ratio
Mayland mortgage lenders will ask you for income documents to review your total income and the amount of debt you're already balancing.
Pros of HELOC
Here are the pros of HELOC:
Getting a loan on HELOC is tax-deductible, so it will undoubtedly save you money.
You can borrow what you need, so it means you can use funds as you need them.
HELOC offers you a flexible payment option as you can decide how much you want to borrow and the lender you want to go with.
Such loans have lower interest rates than credit cards.
Which type of loan is best for you?
Picking up the right home equity financing depends entirely on your needs and requirements. However, HELOC is known for lower interest rates and greater payment flexibility, but if you need all the money at once, a home equity loan is best for you. If you're still puzzled, then think about the purpose of financing, as it will help you better choose the loan accordingly. Further, if you are looking for a loan at economical rates, then SunnyLendng LLC is the best Maryland mortgage lender. We're known for offering the best mortgage competitive rates in Maryland. We always aim to serve our customers with honesty, integrity, and competence. We offer residential and commercial loans to borrowers with the best interest rates. For more queries and information, connect with us to make a wise investment in the future.