When applying for a home equity loan, you have to prove your income, assets, and employment information. The lender will also want a copy of your credit report and information on all of your debts and liabilities.
Significance
Your assets and income show the lender your ability to repay the debt. The higher your income is, the more likely you are to get your loan.
Function
A credit report is used to determine your debt-to-income ratio. This is your total monthly debt payments versus your total monthly income. The lower the ratio, the more qualified you are.
Types
The documentation required will include, but may not be limited to, bank statements, pay stubs and tax returns.
Considerations
Your credit score greatly impacts the interest rate on your home equity loan. This is another reason that it is in your best interest to always maintain the highest credit score that you can.
Prevention/Solution
To quickly raise your credit score prior to application, you can pay down your credit cards to less than 30 percent of their credit limits.
Warning
Your home equity line of credit limit will depend on how much equity you have in your home. Most lenders require a minimum of 20 percent equity in the home before they will approve a home equity loan.
References
Writer Bio
Lynn Lauren has been a professional writer since 1999, focusing on the areas of weddings, professional profiles and the banking industry. She has been published in several local magazines including "Elegant Island Weddings." Lauren has a Master of Business Administration and a Bachelor of Business Administration, both with marketing concentrations from Georgia Southern University and Mercer University, respectively.