It is advisable that you gather all your financial information and required documentation as early as possible to make applying for a home equity loan as simple as possible.
In order to complete your home equity loan application quickly, you will need to obtain the following information:
- Your social security number
- Support obligations and unreported debts, such as alimony and child support
- Previous employment history and contact information for previous employers
- A recent income statement
- A copy of your homeowners’ insurance policy
- Your latest pay stub
- Your mortgage statement
- W-2 statements for the past two years (Discover can also help with this)
- Your home’s valuation or appraisal
- Documents proving you have debt or liens against your home
- Your lender will also require that you sign several forms.
Our home equity application checklist provides a quick overview of all the documents you’ll need. If you are receiving social security income or have any other special circumstances concerning your income, you will need to provide additional information. This list explains when you need to provide additional information & what does it include.
When you have gathered all the necessary information, you are ready to speak with a loan officer about your home equity mortgage application.
Is it a good idea to take out home equity loans?
Your financial situation and your plans for the funds will determine whether or not you should obtain a home equity loan. A home equity loan carries substantial risk, so you should carefully consider the advantages and disadvantages of the loan before availing of them.
Advantages:
- Having a fixed rate makes budgeting easier because payments are predictable.
- The interest rate may be lower than with a credit card or personal loan.
- Keeping your current mortgage rate isn’t necessary if you have a low rate now.
- You may be able to deduct the interest if you use the loan for home improvements.
Drawbacks:
- Home equity lines of credit offer more flexibility.
- Whether you use the loan incrementally, such as for a remodeling project, you’ll pay interest on the entire amount.
- Your home may be put at risk if you do not make your payments on time.
- You will owe any remaining balance on your home equity loan if you sell your home before you have completely repaid it.
Home equity loan and a home equity line of credit: What’s the difference?
The amount and duration of your future borrowing needs are important when deciding whether to take out a home equity loan or a HELOC.
Taking out a line of credit (HELOC) will give you more flexibility than taking out a loan if you are unsure how much money you need. You could end up paying interest rates on top of your regular mortgage payment while at the same time having to increase the interest rate.
No matter what you decide, make the payments. The reason why you don’t want to risk foreclosure is that your home serves as collateral.