What Home Equity Lenders Are Looking For
Home equity lenders first of all are interested in your credit. It shows what kind of borrower you are, how much you owe, do you pay on time, and if you have had any bankruptcies, judgments, repossessions or delinquent accounts.
Home equity lenders allow for compensating factors to offset derogatory credit, such as the loan to value, or your job stability. A good credit history allows the lender to offer a higher loan to value, a higher loan amount, and a better interest rate. On the other hand, a low credit score means the lender may offset the risk by reducing the loan to value, and raising the rate.
A good written explanation for credit problems can make a difference in getting a loan. Lenders know that a temporary situation can cause late loan payments, such as, an illness that prevented you from working, or a job lay off that created a gap in your employment.
Another factor is income and job stability. A borrower that has changed jobs frequently, especially in different fields of employment, will be considered a higher risk for a home loan. Lenders would like to see a minimum of two years in the same job, or the same type of work.
The loan to value also influences the loan decision. The percentage of equity relative to the value of your home is an important factor for loan approval and the interest rate. Some lenders have a maximum loan to value of 80%, while others will lend as high as 125%. |
