How to Borrow Money From House Equity

Borrowing money against your house's equity with a home equity loan or home equity line of credit can give you access to much-needed cash. Money borrowed from home equity can help eliminate debt, renovate a property, pay for college or start a new business. Not every house or borrower qualifies for an equity loan. Learn what lenders look for, then consider whether you meet the criteria.

Demonstrate that you're creditworthy. Borrowing money from a house's equity is contingent on whether a lender decides you're worthy of a loan. Pay your bills on time and keep a low debt-to-income ratio to qualify for a loan or line of credit. Check your own credit report prior to approaching lenders. Clean up any errors and pay off any delinquencies, such as charge-offs and collections.

Explain your reason for applying for a equity loan. Your lender might question why you need funds. Be prepared to answer this question.

Certify that you can afford a new debt. You must repay funds acquired from a home equity loan or line of credit. Deliver proof that you can manage a home equity loan by furnishing tax returns, pay stubs and other income information with your application.

Wait for a home appraisal to determine if your property qualifies. Lenders typically limit how much a homeowner can borrow from his equity, and they want the property to retain at least 80 percent equity. With the 80 percent equity rule, a homeowner who owes $120,000 on a house that's worth $250,000 is eligible to borrow up to $80,000. This will increase their mortgage debt to $200,000, which equals 80 percent of $250,000.

Pay for a home appraisal to estimate the property's worth and to determine how much you can borrow. Your lender will choose the appraisal company. Compare home equity loan quotes to get the best interest rate.

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About the Author

Valencia Higuera is a freelance writer from Chesapeake, Virginia. She has contributed content to print publications and online publications such as Sidestep.com, AOL Travel, Work.com and ABC Loan Guide. Higuera primarily works as a personal finance, travel and medical writer. She holds a Bachelor of Arts degree in English/journalism from Old Dominion University.