In 2013, home prices rose and people started rebuilding equity in their homes. The total accumulated value was around $1.9 trillion. Yes, this did prevent many homes from going into foreclosures as over 3.9 million people freed themselves from negative equity. However, there were other consequences as well; the return of home equity loans.

What about this year? Home prices are expected to rise yet gain, just not at the same rates as the ones that were observed in 2013. This means even more equity in people’s homes, and so more home equity loans will be seen.

So are you planning to take a home equity loan? Great, but before that you need to be aware of a few facts.

There are a few eligibility requirements

You can qualify for a home equity loan only if you own at least 20% of your home and your loan to value ratio is 80% or less. This is actually a comparison between the remaining balance and your property’s value. While you might not be fulfilling the requirements right now, you eventually will because home prices will continue to rise throughout the year.

Credit scores and income values will play their part

Lately, banks have witnessed a slow growth in revenues, and so they are eager to lend. But this time, they are more careful about the amounts they lend and to whom they lend. Point is the approval process is going to be a little hard. You not only need enough equity in your home, but you also must have an above par credit score and acceptable income levels. Until these two factors favor you, you will have trouble in getting approval.

You must know exactly what you want

Before you actually take the loan, decide why you want it. Maybe you want to pay off your mounting debts or maybe you have to take care of a huge expense. In both these cases, a home equity loan is a great idea since both the monthly payments and interest rates are fixed. What if  you want money for some ongoing expenses? In this case, a home equity credit line will be a better idea, which is characterized by a variable rate.

Before we close, one last word; remember that with home equity loans, it is your house that is the collateral. Default on it, and you may lose your property to the bank.

Source: www.realestate.aol.com

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