Monday, February 19, 2018
Business

Home equity loan, line offers make a comeback, but be careful

Community banks, credit unions and major banks have shown renewed interest in making home equity loans and lines of credit, as home values climb in many markets and homeowners add to their equity or peek their heads above water for the first time in several years.

Originations of home equity loans exploded in the second quarter, with a 30 percent-plus increase compared with the first quarter, according to Experian, a credit reporting agency.

"This points to the improved equity position for many consumers because they now have equity in their homes due to price increases," said Alan Ikemura of Experian.

Consumers who want to borrow against their home need to understand a few points first. Lending standards are tighter now. Consumers can save money by shopping around for the best rates on the Internet and with local small lenders who may offer even more competitive rates.

The average rate on a home equity loan is 6.14 percent. The average rate on a home equity line of credit is 4.99 percent, according to Bankrate.com.

The trick, as always, is to have enough equity in the house. Take a home valued at $100,000 with a mortgage of $70,000. The homeowner would have $30,000 in equity, but forget about trying to borrow $25,000 or $30,000. Many lenders want the homeowner to retain 20 percent equity in the house even after taking out a home equity loan or line of credit.

Homeowners generally need a credit score of 720 or higher. They'll need to verify employment, offer proof of income and shop harder to find a home equity loan for smaller amounts, like $10,000. Bank of America's minimum for a home equity loan is $25,000.

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