Which Home Equity Lender Is Right for You?
Choosing a home equity lender is as important as choosing a mortgage lender. Most home equity loans are long term sources of financing, and many are issued in revolving terms that allow them to stay active for years. Further, you are placing your home as collateral on a home equity loan just as you did with your mortgage. If you default, your home can be foreclosed on even if your mortgage is active. For these reasons, it is important to approach sourcing a home equity loan on the same terms you approached sourcing your mortgage lender.
Using your Mortgage Lender
For many borrowers, using the same lender for a mortgage and a home equity loan is very convenient. The lender has already run your credit and approved you for a very large debt. If the lender gave you good terms on your mortgage, the lender may extend similar good terms on your home equity line. However, some mortgage lenders will be wary of extending another loan because they will be aggregating their own risk. The lender approved the limits of your mortgage knowing they could recover your home to pay off the loan if you defaulted. By adding a home equity loan, the lender may be over-extending limits and risking the possibility they will not recover in a default.
Using a Dedicated Home Equity Company
Dedicated home equity companies often offer the fastest solutions for your financing. You may find they contact you the moment you purchase your new home. These lenders are willing to extend very high limits in most cases because they have less to risk than a mortgage lender does in the same situation. For home equity lenders, they are extending a loan worth only a small portion of the value of your home. If you default, they have the option of purchasing your mortgage and forcing your home into foreclosure to recover. Choose a dedicated home equity lender if you want financing fast and are looking for high limits.
Using a Credit Card
Credit cards can be secured with home equity and used like a home equity line of credit. For this option, you may not need to seek an actual home equity lender. This is a good option if you would like a more permanent financing source for minor home projects but not big repairs. The limits may be lower, but the options are potentially more flexible.
Using Government Rehabilitation Loans
A final and often ignored option for home owners is seeking a government rehabilitation loan. There are a number of loans guaranteed by the Federal Housing Administration that allow you to rehabilitate, improve or otherwise alter your home at a low rate. These are excellent options if you are in an older home that needs a lot of work or if you are customizing your home for a disability. Safety improvements, like updating drainage or a septic system, may also be affordable through FHA secured loans. You will need to get a private loan, but the FHA can guarantee the loan under one of its rehabilitation program to decrease your expense.