Homeowners complete home improvement projects to increase the value of their investment. These improvements could include anything from kitchen or bathroom remodeling to installing a swimming pool or an exterior kitchen. Equity-based financing could give the homeowner a better way to fund these home improvement projects.

What is an Equity Line of Credit?

An equity line of credit gives the homeowner a line of credit based on the equity that they have built up in their home. To get the line of credit, the homeowner must have no less than 15% equity built up in their mortgage. They must have an income to debt ratio that is no more than 50%, and the homeowner needs a credit score of at least 620 to qualify.

Once approved, the homeowner can access up to a maximum percentage of 85% of what they have paid into their mortgage. The borrower has a predetermined amount of time to get money through the line of credit. After the borrowing period is over, they will start repaying the loan to the lender. Typically, the homeowner has up to twenty years to pay back the money they use. The line of credit has an adjustable rate that can change each period. The interest rate can increase or decrease at the end of each period.

What is a Home Equity Loan?

A home equity loan gives the homeowner a lump sum payment according to how much of their equity they want to borrow. Once the owner chooses an amount and receives the funds, they cannot change their mind and borrow more money at this time. It’s not the same as a home equity line of credit where they can access more funds if they need more money.

The homeowner must meet the same eligibility requirements for the home equity loan as they need for the home equity line of credit. The lender will not approve a home equity loan unless the borrower has paid in at least 20%. The loans come with a fixed rate that won’t change over time and gives the borrower up to 30 years to repay it. Homeowners can get more information from Dustin Dimisa about each of these equity opportunities.

Cash-Out Refinance Options

A cash-out refinance allows the borrower to completely cash out their mortgage and basically start their loan over. The existing mortgage is paid off entirely, and a new mortgage starts. The borrower must have a credit score of no less than 580, but they must keep in mind that their credit scores will affect their interest rates. Their income-to-debt ratio should be no more than 43%. These opportunities are helpful for anyone who wants to borrow more money through a new mortgage without taking out a second mortgage.

Homeowners borrow from the equity they have built up in their homes to complete home improvement projects. Remodeling and renovations are great ways to increase the value of the home and make it more functional. Homeowners can discuss their equity-based financing options with a lender now.