Home equity loans allow homeowners to borrow money by promising the house as collateral.
Homeowners whom are looking to borrow a large amount of money or who do not have good credit will often look to a home equity loan.
Home equity loans are sort of like a second mortgage, not to be confused with a home equity line of credit. Lenders view home equity loans as relatively safe as you can not disappear with your house or hide it if you default on your loan. Because of this, the lender has a pretty good chance of collecting the collateral.
Typically home equity loans are attractive to borrowers for a few reasons. Most of the time, they have a lower interest rate and are easier to qualify for if you have bad credit. In addition, the payments on a home equity loan may be tax deductible and borrowers can get relatively large loans with this type of loan.
Borrowers usually use a home equity loan for larger expenses in life. Most of the time it can be used to remodel or renovate your house. However, homeowners can also use home equity loans to pay for a family member’s college education or finance the purchase of a second home.
There are some pitfalls of home equity loans and all borrowers should be aware of this. The main pitfall is that you run the risk of losing your home if you fail to meet the payment schedule required by the loan. Another danger is that scammers have found plenty of ways to cheat homeowners out of their most valuable asset. Make sure you know who you are doing business with. If the offer for a home equity loan seems like a high pressure sales pitch with the inability to put things in writing, take a step back and analyze the deal.
In order to find the best home equity loan, shop around. Try different sources such as banks, brokers and credit unions. It can also always be helpful to contact your network of friends and family to see if they recommend anyone. Finding the best loan can usually save you thousands of dollars so it is important to shop around.