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How To Find Out If Your Home Has Enough Equity For A HELOC In Three Easy Steps

[Jul 7, 2009.]


Although home equity loans remain quite popular, many are having a tougher time obtaining HELOCs because of equity issues. To avoid some of these problems, homeowners can take these three steps to make sure their home has enough equity.

1. Ask A Home Equity Lender How Much They're Lending Today?
It may seem like a general question at first, but the specific answer homeowners are looking for is in regards to one's home's equity. This value is more commonly known as the home equity lender's target loan-to-value (LTV) ratio. Borrowers need to find out the specific LTV ratio limitation based on their credit history and total household income. Although it's not necessary to borrow the full amount, this ratio will determine the maximum amount that can be borrowed from a home's equity.

In fact, some homeowners may prefer to stay beneath this limit to avoid additional interest rate add-ons, and provide a substantial cushion in case home prices drop. Individuals will usually find that the limiting factor can vary between one's home equity, credit score, or total income. In this case, if homeowners are concerned about their home's available equity, the LTV ratio will be the category to pay attention to.

2. Start With A Brief Recent Sales Comparison Check
A home equity lender, or broker, will typically have access to a basic housing search service. Among this service is the ability to compile a list of recent sale transactions of comparable homes in the neighborhood. In a matter of minutes, a quick search can help make a quick "guesstimate" as to the value of a home. Remember, this is only a guess of an estimate, and some professionals, with good reason, might even hesitate to offer such help. But with a value in mind, homeowners can then compare the balance of their new loan with this estimated home value.

Homeowners can't hold on to this value like as if it were an appraisal, but it's often good enough to get one started in their search for a home equity loan. Additionally, this estimate is likely to be a bit more accurate than the more commonly found online database services. But again, this by no means serves as a replacement for a complete appraisal.

3. Request The Complete Appraisal
Like any other mortgage loan transaction, a complete appraisal will be required if one decides to move forward with a home equity loan. This move requires the most commitment since an appraisal requires a non-refundable cost anywhere from $250 to $350. However, this will provide the most reliable answer as to whether a home has enough equity to afford an additional mortgage.

If an appraiser wasn't recommended by the home equity lender, or broker, be sure that the appraiser is approved with the lender in consideration. For example, with an FHA home loan, lenders require an FHA approved appraiser certified by HUD. The last thing a homeowner needs is to shell out another few hundred dollars for a duplicate appraisal.


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