Qualifying for a Home Equity Loan
Home Equity Loans are a good idea if you need money as a short term loan where you take one draw at closing and make monthly payments. Home Equity Line of Credits (HELOC) can be good for an upcoming project or to have funds on reserve. Fund can be drawn and repaid and then drawn again as needed, paying interest only on the portion used. If you are locked into a good interest rate on your first mortgage, obtaining a second mortgage Home Equity may be a good option for you. There are several program options with different loan amortization options. A loan officer will be able to review your situation and provide you with the best options for your needs.
In terms of qualifying for the loan, there are four areas to consider:
Credit
Credit history must be good. Prospective borrowers should review their credit report with scores from all three bureaus. This type of report can be obtained by contacting First Equity at 734-475-0270.
Income
Borrowers must have a stable source of income. 24 month employment and/or college history is needed. Some exceptions do apply. Although programs may vary, generally the total debt, including the new house payment, should not exceed 45% of gross (pre-tax) income. Income from part time jobs, bonuses or commissions can be counted if there is a 2 year history.
Reserves
Reserves are a liquid source of cash that a borrower can tap into in case of an emergency. Some programs may require cash reserves. Although reserves are not always required, sometimes having reserves can help a borrower qualify. The most common forms of reserves are IRA or 401K.
Collateral
The home being purchased will be appraised to determine fair market value. If the appraiser states in the report that there is a health and safety concern, then a contractor's inspection or repairs may be needed.
We are here to help
Message us if you have additional questions, would like to get Pre-Qualified, or would like a quote. Let First Equity be your guide through the loan process.