Home Equity Loan Archives - Common Trust FCU

What You Need for a Home Equity Loan in 2021

A major benefit of being a homeowner is the ability to take advantage of home equity loans—borrowing against the equity of your home. If you’ve got big plans, whether to pay for an education, fund a home improvement project or something else special that requires significant funding, a home equity could be right for you.

That said, it’s been one of the most unusual years in recent history. Before making a major financial commitment, you should understand exactly what is needed in order to secure a home equity loan in 2021. To help you get started, we’ve outlined some of the key elements below. If you decide a home equity loan is right for you, check out Common Trust’s limited offer for 10- and 15-year Year Home Equity Loans.

Home Equity

In order to secure a home equity loan, you need to have enough equity in your home in the first place. At Common Trust, your loan-to-value (LTV) ratio can be approved for up to 80%. This means you’ll still have at least 20% equity in your home after taking out a home equity loan.  

Here’s a simple equation for calculating the Home Equity Loan you’re eligible for: 

[(Appraised Value of Home) – (Outstanding Balances)] × (LTV%) = Total Loan Value

The maximum total amount you’ll be eligible for is the total value of your home minus any outstanding balances. 

In sum, before you get too far into the process, ask yourself these questions: 

  • How much equity do I currently have? 
  • How much money am I looking for in a home equity loan? 

If you know the answer to those two questions, you can make sure that your goal for a loan is feasible.

Credit and Payment History

Naturally, when lenders are evaluating whether you are the right fit for a home equity loan, they’ll examine your credit and payment history. They look at the different credit accounts you have, like credit cards, ongoing student loans, and more. They’ll also review how much you’ve paid—and how much you owe. Most importantly, they’ll check to see whether your payments are on-time or if a portion of them are late. So make sure you’re regularly getting your payments in on time!

Credit Score

Most financial institutions require a credit score of at least 620. That said, your lender’s requirements could be higher, so make sure to check with them. Regardless, the higher your credit score, the more likely you are to qualify. 

Many banks and credit unions look for credit scores in the mid 700s, so that’s a good target to shoot for. If your score isn’t quite that high, that’s okay too; it is still possible to qualify for a home equity loan with a less-than-perfect credit score. Check out our guide for more best practices for credit scores. 

Debt-to-income Ratio

One of the key items a lender looks at when deciding whether to give you a loan is how you’ve managed other debts. They’re checking to make sure you can responsibly handle debt and that you’re not too weighed down with other loans and payments.

Your Debt-to-income (DTI) ratio is a measurement lenders use to determine this. Your DTI is the percent of your total gross monthly income that you use to repay your debt.

As a rule of thumb, most financial institutions require a DTI of 43% or lower in order to qualify for a home equity loan.

How to calculate your Debt-to-Income ratio:

  1. Add together all your current debts you pay off (car payments, student loans, credit card debt, etc.)
  2. Add to that total the expected monthly cost of your home equity loan.
  3. Divide that sum by your pre-tax income. The percentage you get is your DTI ratio.

Your DTI is critical for a home equity loan, so be sure to run those calculations to better understand what your options are.

Putting it All Together

To put yourself in the best position for a home equity loan in 2021, you’ll want to make sure you have a solid amount of equity in your home, a reliable credit and payment history, a high credit score, a relatively low debt-to-income ratio. As always, speaking with your financial institution is a great place to start when figuring all this out.

Special Offer: Limited Time Home Equity Loan Promotion

Think a Home Equity Loan could be right for you? It’s time to find out. Until March 31, 2021, Common Trust is offering our special 10- and 15-year Year Home Equity Loan promotion. With rates as low as 2.99*, you can get access to the funds you need and pursue the opportunity you’ve been waiting for. Take advantage of our low rates while you can. Check out the offer, and if you’re interested, get in touch! We’d love to speak with you and give you the information you need.

*Actual rate is subject to creditworthiness

Is a Home Equity Loan Right for You?

A new year means new goals, adventures, and purchases. Are you financially prepared and in good standing to follow through with your dreams? Whether you’re looking to make big home improvements, pay off debt, fund a loved one’s education or simply have extra cash for a special project, a home equity loan could be the right solution for you to quickly get you the funds you need. But before we launch into what defines a “good” home equity loan and how to get one, let’s get started with the basics of this source of financial backing.

What’s a Home Equity Loan?

Similar to the first mortgage you used to initially purchase your home, a home equity loan is a second mortgage on your home. With this type of loan, you’re borrowing money against the value of your home without any of your unpaid balances. The terms will vary depending on promotion, company, and creditworthiness. Some will have fixed rates, whereas some may have variable rates based upon U.S. economic trends. Some may also have numerous other fees attached—something to look out for. 

How much will the loan be for?

The maximum home equity loan you’ll be eligible for would be the total value of your home minus any outstanding balances. Depending on which bank or credit union you decide to pursue the loan through, home equity loan values can vary. At Common Trust, your loan can be approved for up to Eighty Percent (80% LTV) of the appraised value of the real estate, minus First Mortgage balance before minimum dollar amount. Loan-to-Value amount is the ratio the bank will allow you to be approved for (ex. 80% LTV of a total value of $100,000 would be an $80,000 loan). The minimum loan value is $10,000 and the maximum dollar amount is $300,000. Imagine what you could do with such spending power! The possibilities are endless.

A simple equation for use in determining the Home Equity Loan you’re eligible for: 

[(Appraised Value of Home) – (Outstanding Balances)] × (LTV%) = Total Loan Value

Is a home equity loan a good idea?

Home equity loans are a great way to access funds that you need to do the things you love. If you are in good financial standing and have a good grip on managing your finances in general, you’ll surely reap the benefits of a Home Equity Loan without any negative drawbacks. If you find yourself struggling to manage your budgeting and always stress about finances, a home equity loan may not be the right choice for you. 

Are there any cons?

As with any financial investment, if you aren’t responsible you may find yourself in deep waters relatively quickly. It’s important to understand your financial standing and whether or not you can afford to take out such a loan. Be sure to confirm all interest rates before signing off on the loan to prevent any surprise fees, and never be afraid to ask as many questions as you need to finalize your decision. This is likely one of the biggest loans you’ll take out, so make sure it’s the right choice. 

There are a few other very notable disadvantages to a Home Equity Loan if used frivolously, however. Keep in mind that your home is being used as collateral to back this loan, so if there are any instances where you can’t make payments they can technically take possession of your property. Since your loan is based on the equity of your home, which can decrease in value depending upon economic trends, you may end up owing more money on your home than it’s actually worth if there’s a serious drop in appraised value. This is commonly known as being “underwater” or “upside-down”. Though these drawbacks can easily be prevented with more research on your loan terms and home value, they are still important to consider when investing in this type of loan. 

Think a Home Equity Loan could be right for you? We have good news! Until March 31, 2020, Common Trust is proud to be offering our 10 Year Home Equity Loan promotion. With competitive rates as low as 4.99*, you can get access to the funds you need and pursue the opportunity you’ve been waiting for. Take advantage of our low rates while you can—give us a ring or reach out via email today!

*Actual rate is subject to creditworthiness

Give Feedback