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Considering Borrowing against Home Equity?

Kid riding on dad's shoulders

Home values are up. In keeping with the rise in the median cost of a home, the average purchase loan amount recently hit $375,000, the highest-ever since the inception of the Mortgage Bankers Association’s survey in 1990. If you are looking at accessing cash in your home, consider these unique facets of a home equity loan or a home equity line of credit (HELOC) before applying:

  • Determine if you have sufficient equity - at least 15% to 20%. Lenders will use equity to define how much you can borrow.

  • Consider taking action to improve a credit score below the mid-600s. A higher score is more favorable when the lender sets your rate(s). Having a reliable payment history will improve your approval odds as well.

  • Look at your debt-to-income ratio. Often lenders look at borrowers as lower risk when their debt relative to their income is 43% or lower. Lenders will scrutinize your income as well to make sure you’ll be able to repay the loan.

Home equity loans and HELOCs usually have lower interest rates than credit cards or personal loans. They can help when you need a large amount of money to pay for home improvements, debt consolidation or any other large expenses.


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