How to Get The Best Equity Loan

An equity loan is a loan taken against the value of your home. These are also called "home equity loans" or just "equity loans". The purpose of an equity loan is to convert the value of your home into cash. If you can do this, you can spend the value of your home while still living in it. It's not free, of course, and you'll need to make sure that you repay the equity loan or you'll also lose your house. The trick, as it were, is finding the best equity loan.

Instructions

1. Step 1

Get an appraisal of your home. You'll need an appraisal of your home before you can even think about applying for the best equity loan on the market. The easiest way to do this is to call an appraiser and ask for a "comp" on your home. The appraiser will almost always do this for free. A "comp" gives you an estimate of your home's value based on other homes in your area similar to yours. It's not a full appraisal though.

2. Step 2

Check your credit score. Most people skip this step, but this is important. You'll need to check your credit score with the 3 big credit bureaus (Equifax, TransUnion, and Experian). If your credit score falls below 680, you may want to hold off on applying for any type of equity loan. You'll only get the best equity loan with a credit score of 720 or above.

You can try to increase your credit score by taking out small signature loans from your local bank and paying them back. Charging up a credit card and paying it off every month also helps to boost your score. If you're pretty close to the 720 mark, you may be able to ask for what's called a "rapid rescore" from your mortgage broker. This can boost your score anywhere from 30 to 50 or more points.

3. Step 3

Fill out numerous applications for an equity loan. Finding the best equity loan is going to be quite difficult if you only fill out 1 or 2 loan applications. If you find that your "comp" is more than what you currently owe on your home, and you have a credit score of 720 or above, you will have a lot of leeway in what you can qualify for.

Apply with at least 5 mortgage brokers that offer loans from different banks (you don't want the mortgage brokers to all have the same banks in their portfolio).

4. Step 4

Choose the lowest rate. The best equity loan is really the one with the lowest rate and the most flexibility. Avoid prepayment penalties, and any extra fees for carrying the loan. Also, try to find out up front whether your loan will be sold to another bank who may want to raise your rates (equity loans tend to be variable rate loans) after they purchase the loan.