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How Many Home Equity Loans Can You Have

Home equity is quite possibly one of the most popular loan programs in the US since the application process and requirements are not demanding when compared to some other loan types. Hence, a person might ask – “How many home equity loans can you have?”.

In theory, you can have as many home equity loans as the number of properties you own since these loans are based on the value of your home. However, in reality, this will almost certainly not be a sensible choice to make. A person has to be extremely careful when getting a home equity loan since primary residence is being taken as collateral.

A miniature house made of one hundred dollar bills

In Theory, You Can Have More Than One Equity Loan

Since equity loans take the value of the real estate as collateral (explained further below,) a person can own more than one property and use the value of the other apartment or house as a basis for another home equity loan. However, having a property is, of course, not the only important requirement. As with any mortgage loan, before you can get your mortgage deed, you will have to prove to a lender that your financial status is positive. Renowned companies like Bank of America, City Creek, or Angel Oak will always review your credit history and score first and then proceed to examine your property.

What Is a Home Equity Loan?

Before you start searching for a suitable lending institution, it is probably best to read some books about mortgage services in order to understand the basics. Nevertheless, let us see what a home equity loan exactly is:

  • As mentioned above, a home equity loan will take your property as collateral. In other words, this means that you are pledging your house or apartment as coverage for the money you are loaning. Of course, this never sounds good at first, but if you have a stable financial background, repaying this type of loan is usually never a problem.
  • When you ask for a home equity loan at a company like Charles Schwab and Rocket Mortgage partnership, your real estate will first have to be apprised before the company’s agent can make you an offer. This means that a company will send a professional real estate appraiser to evaluate your property. Generally speaking, people are able to loan 80 to 85% of the value of their property.
  • Of course, your whole financial background will have to be reviewed by the lender. Usually, a credit score of 620 is enough to qualify, and your debt-to-income ratio must not be over 40%. If you are still not a full owner of your property, most companies will not accept clients who have home equity below 20%. Finally, since it is a high-risk loan, if you don’t have a good loan history (too many hard inquiries, for example,) there is little chance of getting approval from the lender.

A Home Equity Loan Is a Convenient but Also a High-Risk Loan

As with any loan program, home equity has its advantages and disadvantages, and you shouldn’t make any rash decisions. The fact that you are using your property as coverage makes it a high-risk loan. So, before you apply for anything, consider all aspects carefully. Here are the main pros and cons of a home equity loan:

ProsCons
If you are given the approval for a home equity loan, you will receive the entire sum of money that you can immediately use in the desired way.Since this is a popular loan program, some mortgage companies exploit this by increasing the APR rate (it is their right to do so,) and by doing so, the entire sum you will owe to the lender will be much higher. Hence, it is necessary to compare at least a few companies before choosing the suitable one.
As of today, home equity loans have fixed interest rates. When closing the agreement, you will be given an exact schedule and plan for payments, and this won’t change until the last installment has been paid. This makes it easier for people to organize their budgets, as opposed to loans where interest rates are adjustable. Although, a non-negotiable interest rate can sometimes be a disadvantage as well, especially if they are unreasonable to the client.You will have to make sensible financial decisions while you are repaying this type of loan, meaning that you will probably have to let go of some old spending habits. The best advice is to refrain from applying for any other loans and always set aside money for the installment first each month. You mustn’t forget that your property is on the line while the loan is being repaid, and a single missed payment can put you in danger.
In 2017, the US government implemented the “Tax Cuts and Jobs Act,” which included a significant change for home equity loans. Namely, if you want to use this money for significant home improvements, the interest rate will be even lower.
A person signing documents

Home Equity Loans Are Great When You Have a Plan

One final piece of advice is to use this money for a lucrative cause. There is no doubt that getting a sudden cash infusion feels good. However, once you have repaid this debt, if you have misused the money and invested in some short-term things, it won’t feel good at all, and you will require a lot of time to get back the money. The home equity loan should be used for long-term investments like house improvements (for example, energy-saving solutions,) business improvements, college education, or something else that has the potential to bring you profit in the future.