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Whether you are dreaming about your much-needed home improvement project, paying for a medical procedure, or consolidating your debt to live debt-free, most homeowners need extra cash at some point in their lives to help their vision become a reality. While many homeowners need money to fund their projects, they rarely find it sitting in a savings account.

A home equity loan, sometimes called a second mortgage, is a valuable tool that offers homeowners the chance to access the equity that is already available in their home. Using this equity, homeowners get the money they need, to make the changes they want. Understanding how home equity loans work and what they can be used for may offer the insight and funding you need to achieve your financial goals faster, while saving more money, than if you were to use an alternative loan solution.




What is a Home Equity Loan?


Home equity loans allow you to tap into the equity you have in your home in order to open your finances and life up to a whole realm of potential. Home equity loan funds can be used for anything including covering education and tuition costs, paying for home repairs, improvements or additions, consolidating debt, and substantial medical expenses.

A home equity loan is designed to be like a second mortgage. You are able to take a lump sum out of your existing equity in your home and use it for anything you like, although home improvements and debt consolidation are the most frequent uses for these funds. Using this type of loan for debt is a great option because it is already your money and you are essentially borrowing from yourself to pay off other debts that you owe. In the long run, this type of loan will allow you to get more out of your money and pay back less than you would with other options on the market.

One requirement of home equity loans is equity in your home. If you do not currently have equity in your home, unfortunately, this is not the right solution for your needs. You may want to consider a personal loan or low rate credit card instead.




How Does a Home Equity Loan Work?


When your home is valued at a higher amount than what you owe on your current mortgage, you have equity in your home. You gain equity by paying your mortgage down over time. Having equity in your home is the first step you need to accomplish before applying for a home equity loan.

When you take out a home equity loan, you will receive one lump sum payment from your equity which will need to be repaid every month for a set period of time. This is often over five to thirty years depending on the loan agreement.

In order to get this loan, you will need to fill out an online home equity loan application. During the loan application process, the loan team may review your W2 earnings statements or 1099-DIV income statements, federal tax returns, bank statements, recent paycheck stubs, and other proof of income. Your current mortgage statement and homeowner’s insurance policy declarations page will most likely be reviewed. A home appraisal may also be required. The review process is to verify you have equity in your home and you are in good financial standing to take out a loan.

When completing your online home equity loan application you will need to provide the reason you are taking the loan out, your credit information, your equity information, and possibly include the debt information that you will be consolidating. All of this information is crucial to the application process.


To dive deeper into what is a home equity loan, review our blog, “What is a Home Equity Loan and Can it Help with Debt Consolidation?”



How to Calculate Home Equity


One of the biggest components of considering if you can get a home equity loan is figuring out if you actually have the equity that you can borrow against. Home equity is the total dollar amount of your home for which you have already paid or the portion you actually own. To calculate home equity, determine the current market value of your home from a tax appraisal, realtor quote, or your best guess. Multiply this amount by 80%, then subtract the balance of your mortgage and any other liens against the property. The resulting figure is your available equity.

For example, consider a home valued at $300,000 with a $100,000 mortgage:

  • $300,000 x 80% = $240,000

  • $240,000 – $100,000 = $140,000 in available equity
If the number is positive you have equity in your home. If it is negative, you do not have equity in your home. Of course, you will need to work with your trusted local lender to confirm your figures and to apply for your home equity loan once you are ready to move forward with the loan process.


For an in-depth look at home equity, review our blog, “What Is Home Equity? 9 Frequently Asked Questions.”



Benefits of Using the Equity in Your Home


When compared to other types of loans, such as personal or unsecured loans and credit cards, leveraging the equity in your home with a home equity loan can have lots of potential benefits including:

  • Lower Rates - Home equity loans typically feature lower interest rates than other types of loan solutions.

  • Predictable Payments - Unlike home equity lines of credit, home equity loans feature a fixed rate. This means your agreed-upon monthly loan payment will remain the same for the life of the loan.

  • Approval - Even with shaky credit, approval for a home equity loan is still possible since lenders typically deem this type of loan as less risky because the borrower's primary residence is held as collateral.

  • Large Loan Amounts - Borrowers potentially have access to large amounts of money, depending on how much equity they currently have in their homes.

  • No Limits on Use - You can use the proceeds from a home equity loan to pay for anything you desire – although some reasons for taking out a home equity loan make more financial sense than others.

In spite of the benefits, it is important to carefully consider all of your options before deciding whether a home equity loan is right for you.

For a deeper understanding of home equity, review our blog, “What is Home Equity and What Can You Do With It?”


Can You Use Your Home Equity Loan for Anything?


Can you use a home equity loan for anything? Yes. Should you use a home equity loan for anything? No.

Before taking out a home equity loan, you should carefully consider the reason you want to borrow the money and whether or not the loan will improve both your current and future financial situations.

A home equity loan is a serious commitment, secured by the borrower's primary residence. For this reason, it is generally not advisable to take out a home equity loan to pay for unnecessary expenses.

Before tapping into your home's equity, carefully consider the reason you are borrowing the money and whether you truly want to commit to paying a home equity payment over the next five to thirty years. Here are some of the most common reasons people tend to utilize a home equity loan.


Can you really use a home equity loan for anything? Discover the answer in our recent blog, “Can You Use a Home Equity Loan for Anything.”


Home Improvements

Using a home equity loan to make upgrades, renovations and home improvements rank among the most prevalent strategies. Home improvements such as new kitchens and expansive bathrooms, as well as outdoor landscape improvements such as pools, fences, and outdoor kitchens, improve quality of life and typically result in increased property value.

For more tips on using your home equity loan to remodel your home, review our blog, “Two Top Ways to Use Your Home Equity to Remodel.”

Debt Consolidation

People with multiple high-interest credit cards or unsecured loans improve their financial portfolios through debt consolidation. Using a home equity loan’s lower interest rate to pay off higher interest rate debts and bring everything into one convenient monthly loan payment saves money and can shorten your repayment period. It can also help improve your credit score. If you are not seriously committed to changing your spending habits, you should think twice before using a home equity loan to consolidate debt. Your house is used as collateral for the home equity loan, so you need to be sure you can pay the loan back in the agreed-upon timeline and increments.

To learn about how a home equity loan can be used to consolidate debt, review our blog, “How Does a Home Equity Loan Work and How to Use it to Consolidate Debt.”

If you are considering using a home equity loan to get out of debt, review our blog, “How to Get Out of Debt Fast - 5 Proven Tips.”


Using a Home Equity Loan as a Debt Consolidation Loan? Avoid These Mistakes

Using a home equity loan for debt consolidation is typically a financially savvy venture. But success requires personal vigilance and financial responsibility. Be sure to avoid these common mistakes to successfully achieve your goal of financial freedom.

  • Forgetting to create a budget

  • Taking out a loan at a higher rate than your existing debt

  • Not modifying your current spending habits

  • Paying off the wrong debt first

  • Closing your credit cards immediately after you pay them off

For more mistakes to avoid when using a home equity loan for debt consolidation, review our blog, “7 Mistakes to Avoid with Your Debt Consolidation Loan.”

To uncover the truth about debt consolidation and for tips to get started, review our blog, “The Truth About Debt Consolidation.”

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Discover what a home equity loan can do for you!

Tap into your home's equity to get the money you need, to do the things you want.

Why wait any longer? Get started today.

Fund your next home improvement project, consolidate debt, pay for education expenses, cover medical bills, and so much more!

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Medical Bills

In many ways, equity is a lot like a rainy day fund. When unanticipated medical procedures are needed, homeowners can secure a home equity loan to ensure they or their loved ones get the medical treatment and care they deserve.

Wedding or Special Event

The cost of getting married has become prohibitive for some couples. But families who have built up years of equity do not necessarily have to cut corners. By establishing a wedding budget, couples and parents can borrow the funds they need to start married life on the right foot.


Low-interest loan products are viable options for educational expenses. Families may find that a home equity loan offers more favorable terms than today’s student loans.

Funding Investments

It’s not uncommon for financial opportunities to present themselves when you lack the cash on hand to benefit. Because a home equity loan allows borrowers significant flexibility, you can use the lump sum to turn a tidy profit.



Securing a Good Home Equity Loan Rate


If you have decided that a home equity loan will improve your financial position, it’s time to begin shopping for the best home equity loan rates. In order to choose a loan package that will work best for you, you should research and compare home equity loan rates and have a few questions prepared to ask your mortgage lender. Be sure to ask your lender what additional fees you should expect, where will the loan be serviced, and if there is an early prepayment penalty.

For more tips on navigating home equity loan rates, review our blog, “Home Equity Loan Rates - What You Absolutely MUST Know.”

If you are looking for current rates, review our blog, “Looking for Current Home Equity Loan Rates? We’ve Got Them!”




HELOC vs Home Equity Loan: What's the Difference?


If you are researching home equity loans, you have likely also seen information about home equity lines of credit (HELOC). There are some major differences between a HELOC and a home equity loan that you should understand prior to applying for either loan.

With a home equity loan, you will take out one large sum at the beginning of the loan with a fixed interest rate. This means the interest rate on the loan, and your monthly payment remains the same throughout the life of the loan.

You will not be able to add more to this loan amount without going through the home equity loan application process again, which is why it is important to know exactly how much you will need when you are applying for the loan. This loan also offers a set term (or loan length) typically between five and thirty years.

A HELOC is a line of credit that functions similarly to a credit card. What initially makes a HELOC resemble a credit card is that borrowers withdraw money against a preset approved limit. They can then make ongoing repayments and withdraw more money over a set period of time called the draw period. This period can last between five and ten years. Once the draw period has concluded, borrowers would enter a repayment payment period of typically ten to twenty years. Like credit cards, the minimum balance and monthly payment can fluctuate.

Another thing to note with a HELOC is that the interest rates are variable which means that your interest rate will change with the market over time. Your monthly payment will not be consistent and your budget may be impacted.


To discover which loan solution is best for your needs, review our blog, “HELOC vs Home Equity Loan Which is Best for Debt Consolidation.”




Request Loan Payment Estimates


Within three days of submitting a completed home equity loan application package with supporting financial documentation and terms of request, your lender will provide you with a loan estimate. The loan estimate will outline the estimated costs of the loan request for which you applied.

At America’s Credit Union, we will contact you as soon as possible to discuss the details of your request. We can calculate different payment quotes to see what suits your budget while accomplishing your financial goals.




Pitfalls to Avoid When Applying for a Home Equity Loan


Shopping, applying for, and getting a loan can appear to be a complicated process, and there are many potential missteps borrowers can take along the way. Be sure to avoid the following four pitfalls when you apply for a home equity loan.


1. Forgetting About Closing Costs

Borrowers often focus most of their loan shopping attention on the interest rates. Although interest rates are an important factor to consider, do not neglect to ask about additional closing costs involved with your loan. Closing costs can include items such as an appraisal, credit reports, recording fees, title insurance, and more. Ask your lender about these fees upfront; look for them disclosed on your loan estimate.

2. Ordering Your Own Appraisal

When estimating how much you might be able to borrow in a home equity loan, you might be tempted to order your own appraisal or comparative market analysis (CMA) to see how much your property is worth. If you purchase an appraisal on your own, you might end up paying for two appraisals. Depending on your loan request, your lender might be legally obligated to order an appraisal from a list of approved appraisers – even if you already purchased an appraisal. You will end up paying for two, and appraisals do not come cheap.

3. Borrowing More Than You Need

Just because you have lots of equity available does not necessarily mean you should take all of it out in a loan. Although it can be tempting to access this source of cash, you might end up spending it on things you may not need.

Although they can be incredibly useful, home equity loans require you to make a payment each month over a period of up to thirty years. Before making this sort of commitment, safeguard your financial future by borrowing only what you need.

4. Choosing the Wrong Lender

When taking out a loan as large as a home equity loan, which also puts your home on the line, be sure you are working with a trusted lender you know and trust. Find out whether or not your lender services their own loans or sells them to secondary market mortgage companies, as this will affect how you make payments and handle any sort of concerns with your loan in the future.

For loan application tips, review our blog, “[4 Application Tips] What is needed for a Home Equity Loan?”




Potential Tax Benefits of a Home Equity Loan


In order to encourage consumers to participate in the real estate market, the IRS offers certain tax benefits to homeowners in the form of deductions on tax returns. The tax code regarding deducting mortgage interest is fairly complex, with lots of caveats and special circumstances.

You may be able to deduct mortgage interest on loans such as a mortgage used to buy your home, a second mortgage, a line of credit, or a home equity loan.

To find out whether you can deduct your mortgage and home equity loan interest payments and how much you are allowed to deduct, we recommend speaking with a certified public accountant.




Home Equity Loans with America’s Credit Union


At America's Credit Union, our experienced and knowledgeable mortgage lenders can help you determine whether a home equity loan is a right solution for you and your needs.

With our personalized loan approval approach, we offer flexible loan terms, low closing costs, no-prepayment penalties or application fees, and competitive home equity loan rates. In addition, we service all of our loans in-house, meaning you can continue visiting same America’s Credit Union location and working with the same lender and member service representatives throughout the life of your loan.

If you are unsure if you have enough equity in your home or if applying for a home equity loan is the right solution for your individual financial situation, please contact us today, we are happy to help.