What are home equity loans?
Home equity loans belong to the realm of ‘consumer debt,’ empowering homeowners to access loans using their property’s equity as collateral. In India, a home equity loan spans 15 years and generally boasts a lower interest rate than personal loans. The loan amount depends on the gap between the owner’s outstanding mortgage balance and the property’s current market value. Home equity loans are available for both residential and non-residential properties. It’s wise to maintain a stellar credit history before applying for a home equity loan. It is advisable to have a good credit history before applying for a home equity loan.
If you’re approved, the lender will create a second mortgage and cut you a check for the full loan amount. You can then use this lump sum how you wish and will repay it in equal instalments with interest over time. This can be a good option if you know exactly how much you need to borrow.
Home Equity Loan Requirements
Eligibility requirements for a home equity loan vary from lender to lender. However, all lenders look for responsible, low-risk individuals.
These are generally the benchmarks that most lenders expect borrowers to meet:
– 620 credit score (some lenders may require a minimum of 680)
– Proof of stable and sustainable income from the past two years
– At least 80% equity in your property
– Debt-to-income (DTI) ratio no higher than 43%
– Excellent financial history
– Proof of homeowners insurance