How To Open an Equity Line of Credit

It is fairly easy to open a brand new equity line of credit; anyone who owns a house and whose credit is in generally good standing can apply for one. Preference is usually given to the primary residence, however some lenders may consider a second home as collateral for opening an equity line of credit. One should pursue the following steps in order to get a line of credit:

  1. Find out the value of your home. The cheapest way is to learn your house’s state equalized value (SEV).  This information is available through your local property tax assessors’ office. Many have it online for free. Once you have that information, just double the SEV; that would be your approximate value of your home.  The other option is to order a professional appraisal of the property. This will probably cost you at least $100, but then you will know the exact value of your home for an equity line of credit.
  2. Learn your available equity. That is, subtract what you owe on the home from what it’s worth. In the wake of the recent economic crisis, very few lenders will offer to open an equity line of credit that is in excess of 80% of the value of your home.  Once that amount has been determined, move on to the next step. There will be a huge rate difference if you are allowed to borrow more than 80% of the value of the house. Check the rates for personal loans and even credit cards before opening a new equity line of credit to make sure that you are getting the best available deal.
  3. Shop around. Check out your local banks, credit unions, and offers from reputable companies that you find online (if you're in doubt, you can always check the whether the company is in good standing with the Better Business Bureau). Learn about the interest rates, and any late fees or penalties that you will face if you have a slow or missed payment. It is great if you know your credit score, because knowing your score will help you narrow down the approximate rate for which you qualify; but don’t worry if you don’t. To gather information before opening a new equity line of credit is extremely important, as when you are ready to apply all you have to do is contact the lender who offers the best deal and submit your application.
  4. Be informed. Once your application for new equity line of credit has been submitted, ask what your credit score is. The lender has to disclose it. Make sure that you are getting the best deal based on the research that you completed before you applied to open an equity line of credit. If not, don’t be afraid to negotiate; if you are still unsatisfied ,go to another lender.



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