What is the Maximum Home Equity Loan Amount?
There’s a lot of talk about property values on the rise, resulting in high levels of home equity. According to a September 2017 CoreLogic report, owners of mortgaged properties in the U.S. (roughly 63 percent of all homes) gained an aggregate of $766 billion in additional equity between the second quarter of 2016 and second quarter of 2017. This is an increase of 10.6 percent in nationwide home equity over that period.
Because of this boom, many homeowners continue to look to programs like home equity loans and lines of credit. If you’re interested in taking advantage of the equity in your home but are unsure how to get started, take a look at these options and ask yourself the following questions.
What is a home equity loan?
A home equity loan is like a second mortgage, allowing you to borrow against your property assuming there is enough equity available.
How much of my equity is available to me?
The maximum home equity loan amount you can get depends on what your home is worth. And, the amount your mortgage is worth depends on the cost of your house. You’ll get a percentage of that worth for your first and possibly second mortgage.
Today, most companies will limit the loan to value for home equity loans combined at around 90 percent. This means the maximum most banks are willing to give is an 80-10-10 mortgage. So, you can get an 80% loan to home value first mortgage, a 10 percent loan to value second mortgage, and you’ll have to put 10 percent down. For instance, if your house is worth 100 thousand dollars, your first mortgage would be set at 80 thousand dollars, and your second mortgage could be at 10 thousand dollars. This means that the highest combined home loan amount you’ll get will be around 90 percent of your home’s value.
What is the difference between a home equity line of credit (HELOC) versus a home equity loan?
When you get a home equity loan, you will receive the full amount when you close the loan. This makes a home equity loan preferable for anything where you need a large lump sum. On the other hand, a HELOC provides you with a line of credit, giving you access to cash as needed. HELOC is often the product of choice for people who need extra cash for long-term projects like home improvement. Our salary-based mortgage consultants can talk to you about our First Lien HELOC product to see if it may be a good loan option for you.
Are there other ways to take advantage of my home equity?
Cash-out refinance - this option allows you to refinance your current mortgage (often at a lower interest rate), and you can turn your home equity into cash. It’s another common approach for homeowners who are looking to spend a significant dollar amount on a long-term purchase, like a home renovation or down payment on a second home. A cash-out refinance works by writing your existing mortgage into a new mortgage at a higher amount (depending on available equity). This allows you to receive the difference between the two loans in cash.
Reverse mortgage - this option is reserved for homeowners who are 62 years and older. It allows them to access tax-free cash in a lump sum, via monthly payouts, or even as a line of credit. A reverse mortgage is a great way for retirees to use their home equity to preserve their wealth.
If you’re looking for a relatively easy way to access cash, it’s time to consider your home equity and the many ways of accessing it. A great way to get started is by calling the salary-based mortgage consultants at American Financing. You can learn about options that make sense for your financial goals.