The home equity process
Understanding the loan application process prepares you to make better decisions. Take some time to get organized. Find out what documents and information you’ll need when you apply for a home equity loan or line of credit.
Before applying, you should have the following information:
- Current mortgage information. You’ll need to know information about the lender who holds your current mortgage. Also, you will need to specify if it is a first or second mortgage.
- Your current monthly and yearly income. You’ll need to provide your employer’s name, your job title, your start date, your work phone number, the type of work you do, and how much you make.
- Personal information. You will only need the basics here: your name, Social Security number, phone number, amount of time at current address, marital status and the number of co-applicants.
- Your current debt. You’ll need to provide specific debt information. Have ready the names of creditors you owe, the amount you owe each creditor, your total amount of debt, how often you make payments, total monthly payments of debt and the original amounts of your debts.
- Property information. You’ll need to know the year your property was built, the property’s address and the county where it is located. Also, the lender will want to know the approximate value of your house, and what it is used for (primary residence, vacation home, etc.).
- Co-applicant information. You’ll need to provide the same personal information about each co-applicant as you did about yourself.
The good news about applying for a loan against the equity in your home is that the application process takes less time than that of a first mortgage or refinance.
Many of the same fees are associated with home equity loans as are charged with other types of mortgage loans. However, one fee particular to equity loans is the annual fee that some lenders charge for keeping your home equity line of credit open. You will want to compare the fees of different lenders before deciding on a lender.
Home Equity Loan or Line of Credit
Your two choices in using your equity are a home equity loan or a home equity line of credit. The way in which you plan on using your home equity will help you determine which one is best for you.
Home equity loans
Home equity loans are used when you need to borrow a specific dollar amount against the equity of your home. Home equity loans can be used for any number of immediate purposes, including debt consolidation, vacations, vehicle purchases, etc. Home equity loans have fixed interest and fixed monthly payments.
Home equity line of credit
A home equity line of credit is used when you only want to use a little of your home equity at a time. A home equity line of credit is like a credit card where the security is the equity in your home. Your equity determines the limit on the line of credit. Each time you make a payment to the balance of your line of credit that amount becomes available for you to use again, if you choose to do so.
Compare your choices
|Home Equity Loan||Home Equity Line of Credit|
|Interest||Tax deductible in most cases||Tax deductible in most cases|
|Access to funds||Funds dispersed in a single
Electronic transfer of funds into
the account of your choice.
|Equity Credit Line
|Payment options||Fixed monthly payments Direct Payments from your checking account||Principal plus
Direct payments from your checking account
During the loan process you may be asked to provide some basic documentation to help validate the information provided. This may include:
- Recent pay stubs
- W-2's, or tax returns if self employed
- Homeowner's insurance policy or binder
The lender may also need to obtain lender’s title insurance on your property. Title insurance provides the lender with protection in the case that other lien holders are discovered. The cost of title insurance can sometimes be financed.
Processing the loan
Once the lender has received all of the necessary information, your loan will be processed as quickly as possible. When you apply, your loan counselor will review the final application with you to make sure all your options have been considered.
Closing your loan or line
Once you’ve applied and been approved, the next step is signing the loan documents. You should review the documents carefully before you sign them.
Make sure that you manage your home equity loan or line of credit as carefully as you would a first or refinanced mortgage. Be consistent with your payments. Watch the rates. Be aware of the balance of your line of credit, and let your lender know of any questions or concerns you may have.
Read About How to Begin the Process
Mortgages at Simmons Bank
There's a lot to know when it comes to buying a home. That's why we offer free resources, such as calculators and home-buying guides, to make sure you're equipped with the knowledge you need.
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Using home equity