Is having a good credit score essential for obtaining a home equity loan? Yes and no. You don’t need good credit to get a home equity loan. However, you will need good credit to get a lower-rate home equity loan — the very essence of a home equity loan is…home equity.
How Much Money Can I Borrow Using a Home Equity Loan?
When you look to borrow money using your home as collateral, you may be eligible for a home equity loan or a HELOC. So, how much money can you borrow?
Borrowers can use up to 75% of their home’s equity through an alternative mortgage lender. If you are looking for a HELOC, then the maximum is 65%.
What Are The Disadvantages Of Using a HELOC Rather Than a Home Equity Loan?
When it comes to the credit score required for a home equity loan, HELOCs present disadvantages like credit and debt servicing ratios. This can significantly reduce the amount you qualify for.
Also, a HELOC won’t work for consumers who don’t have considerable equity and require good credit to qualify. Another disadvantage of HELOCs is that it lets borrowers make interest-only payments during the draw period, making it too easy to access cash without feeling the pain of decisions right away.
What Are The Advantages Of a Home Equity Loan Over a HELOC?
Having a good credit score is not essential for getting a home equity loan. A home equity loan is approved on home equity, not your income or credit. This may allow a homeowner to qualify up to 75% of your home’s value regardless of income or credit.
Home equity loans have a set repayment period and a fixed interest rate, meaning the borrower’s monthly payment will never change.
Are There Cost Savings For a HELOC Compared To a Home Equity Loan?
HELOCs are the cheapest product allowing homeowners to obtain rates as low as Prime + .5%. The legal registration of a HELOC is also less. Usually under a thousand dollars for registering and appraising the property.
Home Equity Loans costs, however, are much higher. Rates can start as low as Prime + 4.55% and up. Additionally, there are higher legal costs and broker or lender fees associated with the financing.
When it comes to what credit score is best for getting a loan, we have a lot of information on HELOCs and Home Equity Loans in BC, Canada. At YourEquity.ca, we can advise you on what is the best loan for your particular situation and what type of lender can help you best.
If you enjoyed this article, you might also like:
- How To Get Pre-Approved For a Home Loan
- Using Private Mortgage Lenders For Bad Credit
- How Many Mortgages Can You Have In BC, Canada