By Acme Homes 9-19-2022
When you are in a pinch and need extra funds, cashing in the equity you have in your home is a viable option. If you are unsure on how to do just that, we’ve got you covered. Here is a step by step guide to getting equity out of your home and cash into your hands.
What You Need to Know Before You Begin
How do you get equity? Homeowners will gain equity over time as they pay down their mortgage and as the value of their home increases. Making renovations and improvements to your home can also get you equity.
It is important to know that not all homeowners will have enough equity in their home to borrow from it. Generally speaking, lenders require you to have 15 to 20 percent equity in your home before you can qualify for a loan. But that percentage varies from lender to lender, so definitely do your research and shop around until you find a lender that you are comfortable with.
Another important thing to note is that taking out a home equity loan will lengthen your mortgage term, meaning that you will have to make payments on your home for longer. A home equity loan is sometimes referred to as a second mortgage. A second mortgage is just that, an extra monthly payment that you will need to make. So, make sure that you feel comfortable taking on that additional financial responsibility.
Determine How Much Equity You Have
To begin the process, you need to determine how much equity you have. The best and easiest way to do this is by meeting with a mortgage lender. They will be able to help you accurately determine your home’s equity amount.
A lender will also be able to help you figure out how much of that equity you can borrow. Typically, you can borrow up to 85 percent of the total amount of equity you have.
Know Your Financing Options
There are multiple financing options you can utilize when getting equity out of your home. The first one is a home equity loan. This type of loan is relatively easy to qualify for and obtain. The lender will give the homeowner one lump sum which they will pay back on top of their existing mortgage.
The second option is a home equity line of credit. Rather than one lump sum, the homeowner can access funds as needed. The homeowner may not need to use the entirety of the equity and therefore will not need to pay back as much.
The last option is cash out refinancing. When refinancing a home, you take out a brand-new mortgage and pay off the old mortgage with the new one. The borrowed equity amount then gets rolled into the new mortgage.
Taking equity out of your home makes sense for a lot of people. Whether you are trying to fund a remodel, pay off debts, medical bills or more, it might be worth taking out a loan on your equity.