You bought your house for one price and now it’s worth more. The difference in what you paid for your house and what it’s worth today is the equity you have built up in your home.
You can borrow the equity you have in your home by working with a bank or mortgage company. Typically, you have a first mortgage already on your home so when you borrow equity you do so with a second mortgage or a home equity loan or line of credit.
When you’re ready, these are the seven steps you have to take.
1. Purpose the Funds
Before you run to the bank or lender, the first thing you want to do is determine the reason you want to access the equity in the first place. Some homeowners have an immediate need for these funds, while others simply want to have something in place in case they need to access the equity in an emergency.
2. Choose the Right Type of Loan
Once you know what you need the money for you can easily choose the right type of equity loan or line of credit to access these funds. If you have an immediate need for the money, then it is typically best to use a home equity loan.
A home equity loan:
- Has a fixed interest rate
- Provides you with a lump sum amount upfront
- Requires you to start making payments on the funds right away
- Tends to have a lower interest rate than a home equity line of credit
If you’re in a situation where you need to access the money a little at a time or just need to set up something in case of an emergency, then a home equity line of credit (also known as a HELOC) might be right up your alley.