Phoenix Home Equity FAQ

While a home equity loan can provide a sensible solution to a number of financial concerns, there are a number of things to consider before taking the plunge. Before borrowing against your home's equity, it's probably a good idea to familiarize yourself with the benefits, risks and requirements associated with getting a home equity loan.

I know what a home equity loan is, but what's a second mortgage?

A second mortgage is the same thing as a home equity loan. Although the term has fallen out of favor in recent years, it's still used occasionally.

How long will it take to repay the money I borrow?

Most lenders offer five-, 10- or 15-year terms, while a select few offer 30-year terms. Your loan consultant will likely help you decide which would work best for you.

Is it possible to borrow more than 80 percent of my home's equity?

While ratios of 75 percent and 80 percent are pretty much the industry standard, there are a few lenders who will allow people with good credit to borrow an amount equaling a full 100 percent of their homes' equity. Recently, a few lenders have tried attracting customers with impeccable credit ratings by offering a 125 percent ratio. However, borrowing more than your house is worth can be risky business, because you could end up making less money than you owe when it's time to sell.

Is there a limit to how much I can borrow?

Although there usually is a set limit, the maximum dollar amount varies from lender to lender. Some set the ceiling at $50,000, while others go as high as $500,000. It should be noted that most lenders also set a minimum amount, which is often anywhere between $5,000 and $50,000.

How long does it take to process a home equity loan?

While some lenders tout instant or next-day approval, there's usually accompanying fine print that explains nothing is set in stone until proof of homeownership, validation of equity and verification of employment has been received. In reality, it takes anywhere from one to three weeks before you receive the money.

Are there a lot of fees involved?

Some lenders offer no up front fees or closing costs, but sock you with a hefty penalty if you pay off the loan early. Others add the charges to the amount being borrowed.

Do I have to get an appraisal done on my home?

Again, whether an official appraisal is required is dependant on the lender you use, and even then some loan companies make the decision on a case-by-case basis. Sometimes the lender will come up with a rough market value based on prices of comparable homes in your area or, more commonly, the loan company will simply refer to your most recent tax assessment.

Can I get approved even if my credit history isn't the greatest?

Because the loan is secured by your home, some lenders might be a bit more willing to overlook blemishes on your credit report than they would if you were applying for an unsecured loan. That's not to say you're sure to get approved; in addition to credit history, income, job security and other outstanding debts are taken into account during the approval process.

I add money to my monthly mortgage payments so I can pay off the loan early. Can I do the same with a home equity loan?

Yes, although some lenders will charge an early payoff penalty. If you intend on paying off your home equity loan before it goes full-term, it's probably best to select a lender that doesn't charge for early payoff.

What information will I need when applying for a home equity loan?

Most lenders require proof of home ownership; proof of income from your job and other sources; the balance owed on your current mortgage; the estimated value of your home; bank account information for all existing accounts; and a form of identification for yourself and anyone else on the loan.

I live in Phoenix, but want to take out a home equity loan on a rental property I own in Glendale. Can I do that?

That depends on the lender you choose. Some require that you live in the dwelling you're borrowing against while others only want proof of ownership.