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Homeowners who are swimming in debt find new ways to pay off their debts and become more financially stable. A home equity loan gives them a funding source to settle their debts quickly and effectively. The homeowner can use their own equity to eliminate debt and improve their credit scores.
Calculate Their Current Debt Volume
The homeowner starts by calculating their current debt volume. How much they owe defines how much they need to borrow and pay off. When evaluating their debt volume, they must determine if any of the creditors will provide a settlement offer.
Typically, accounts that have been charged-off or closed by the creditor are great options for settlement offers. The settlement offers are around 50% less than the total debt amount. They should calculate their debt volume with the new balances from the settlement offers.
Calculate Their Total Equity
The total equity is the percentage of the mortgage the homeowner has paid off. They can borrow an amount that is not higher than the total equity amount they have accumulated. Typically, the lender will not give them an amount that reflects the entire equity, and they could decrease the loan amount by up to 10%. By reviewing how much they can get, the homeowner can plan ahead and determine how much they will need to settle their debts.
Review the Qualifications for the Loan
To get a home equity loan, the homeowner must have a credit score of at least 620 and at least 20% equity built up in their home. The lender reviews the homeowner’s income, credit scores, and debt-to-income ratio. If they have a debt-to-income ratio of more than 43%, they will not qualify for the home equity loan. Homeowners can get more details by contacting a lender right now.
Determine How Much to Borrow
The homeowner must consider how much of their debt volume they want to pay off with the loan. They should consider how much they can pay each month without overextending themselves financially.
When evaluating the amount available, the homeowner can review the monthly payments for a variety of amounts up to the maximum loan amount. They can accept any offer that their lender deems affordable. The homeowner can also review any additional insurance requirements that come with the loan.
Set Up the Home Equity Loan
When setting up the home equity loan, the homeowner must determine if they want a fixed-rate or adjustable-rate home equity loan. With the fixed-rate, they won’t have to worry about the payments increasing, and the adjustable-rate loan will have revolving payment amounts. It is also necessary to determine how long they want to take to pay off the loan. They have the option between 10 and 30 years to repay it.
Homeowners take out a home equity loan to settle debts and decrease their debt volume. By paying off debts, the property owner improves their credit rating and qualifies for other lines of credit. However, it is wise to pay off their home equity loan before opening any new lines of credit. Homeowners can learn more about home equity loans by contacting a lender now.
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