A home equity loan, or also known as an equity loan, is a type of consumer debt. Through the loan, homeowners get to borrow a lump sum of money against the equity in their home. However, its difference with other loans is that the loan amount scales off the difference between the home’s current market value and the mortgage balance due.
Similar to a mortgage, a home equity loan works by using the homeowner’s house as collateral for the lender. The lender will now allow the homeowner to borrow funds based on the combined loan-to-value ratio of the home’s 80 to 90 percent appraised value. In effect, homeowners can value a specified amount which will have lower interest rates compared to other loans.
However, acquiring a home equity loan requires some time. Before applying for it, make sure you have enough equity in the property. Next, build up the equity and make sure to keep it at a high score. But overall, how do people get approved for a home equity loan faster?
How to Build Equity in a Property
There are many reasons why people should build equity in their homes. Although there are several ways to do it, increasing the property value or reducing the mortgage debt are two possible options.
1. Make a Big Deposit
By making a significant amount of deposit, people get to build their equity in a property at a faster rate. Depending on the mortgage owed, try to put down at least ten per cent of the asking price of the home.
Although ten percent is an ideal amount adding more instantly boosts your equity. Meanwhile, for people with more extra cash, putting down at least twenty percent of the mortgage does not only help your equity grow but also prevents you from paying lenders mortgage insurance.
2. Pay More Monthly
Since mortgages are on an amortization schedule, lenders will have to make equal payments over a set period of time until the loan gets paid off. Although paying the same required amount every month works fine, going over it should further increase your equity in the property.
By paying a little over the agreed monthly amount, you’re building the equity faster by reducing the total amount of mortgage you owe. It also helps to pay bi-weekly, ensuring that you pay off at least half of your monthly payments every two weeks. Lastly, with every extra amount that you have on your hands, make sure to pay it to the lender to further reduce what you owe quicker.
Duration For Equity Loan Approval
Building equity in the property is the difficult part; applying for the loan itself takes a shorter time. First, after estimating 80 per cent of the current property value subtracted by the outstanding mortgage balance, contact a lender immediately to fill out an application form. An equity loan is similar to a personal loan, which means it could take a few days or weeks to hear from the lender again.
After submitting an application for the loan, the lender would need to perform a valuation on the property to confirm its level of equity. The process alone would affect the duration of the application. On average, it could take another few weeks for the lender to finish the valuation on the property. Overall, you might be looking at a few weeks to a few months at most.
The money acquired from a home equity loan can be used for any purpose, making it a quick and easy way of borrowing money. However, consider the home equity loan as a priority when it comes to paying dues as your property is on the line. Also, never apply for an equity loan for making risky financial decisions, such as opening a business. The loan itself is a smart financial move, but similar to most loans, think well before tapping into it.
Wealthy You is Australia’s expert in home equity and line of credit. We offer alternative finance programs for clients in Sydney looking for ways to get a bit of financial help. As a company, we help people look for financial resources that fit their needs and preferences. Schedule an appointment through our website today.