How To Obtain a Home Equity Loan

Obtaining a home equity loan is really a simple process. There are just a few things you will need to have in order to get approved for a home equity loan.  You must have verifiable income, you must have the capacity to repay the loan, and you are required to already have equity in your home.

Let’s classify what equity is! Equity in a home is the difference between what the value of your home is (based on a current appraisal) minus your outstanding mortgage balance. For example: if your home has a value of $200,000 and you have a mortgage balance of $150,000, fundamentally speaking you have $50,000 in equity.

This does not mean you can borrow $50,000. Although you have this amount of equity in your home you will need to meet the lender's guidelines. Home equity loans are strongly based on your credit score and what is called Loan-To-Value (LTV). The lender you choose will tell you how high your LTV is. The higher your credit score, the higher your potential LTV.

In the scenario used above, this would be considered a 100% LTV. This high of an LTV is possible, but only if you meet the lender's guidelines.

Here are the steps needed to get the process going to apply for a home equity loan.

Choose your lender. You can go to your local bank, mortgage broker, or search for a lender online. The next step is going to require you to fill out a credit application. You will need to have basic information available: your name, address, social security number, employer's contact information, and income.

Hard documentation that will be required includes a copy of your driver’s license or state ID, a social security card, the last 30 days of your pay stubs, the last two years of your tax returns, proof of homeowners insurance, and any other applicable information that may be required by the lender. In most circumstances you will not need this information until after you receive your initial approval. Your final approval is issued after all of the hard documentation has been received and verified.

Some lenders are going to require the initial cost of the appraisal up front. This money goes straight to the cost of the appraisal. They cannot charge you any more than the true cost of the appraisal, so don't allow them to charge additional fees for this. Even if you do not close your loan, you are entitled to the original copy of the appraisal.

This is really all that is needed to get approved for a home equity loan. Good luck!