What Is My Home Equity and How Much Can I Borrow From It

How many times have you heard the term home equity thrown casually by people in the mortgage industry? What about those calls you receive offering a home equity this or a home equity that? You called your agent asking why your payment went up but before the rep lets you go, she offers a home equity product.

Your home equity is the portion of your home that you own. If the current value of your home is $150,000 and the remaining unpaid balance of your mortgage is $60,000; the balance or difference between the two is your equity. This means your home equity is $90,000. If you do not have an existing mortgage then you have a 100% home equity.

You might ask if you have an existing mortgage why take out a home equity loan. A home equity loan is basically a second mortgage so if you borrowed against your home equity you will now have two mortgages. Two mortgages mean two monthly mortgage payments to make. What if you do not have any existing mortgage, why would you want to borrow against your home equity and place yourself in debt?

The answer is need. It is fine if you do not need the money, but what if you do? Borrowing against your home equity might be the easiest way to make ends meet; pay for college; or if you want to spruce your home and its market value.

It is true that an equity loan is still a loan but it differs from traditional mortgages in several ways. An equity loan has a shorter term. Home equity loan rates tend to be lower than traditional mortgages. Since your equity is your collateral, you have greater haggling power to get the home equity loan rates of your dreams.

So how much can you borrow against your home equity

That will depend on 3 things: state laws, your ability to pay, and your credit history. Generally, the more Home equity you have, the more you can borrow up to a particular limit depending which State you reside in. So, how do I build up my Home Equity ? Here's a simple mortgage reduction program that will quickly build your home equity and pay your mortgage off faster than any other mortgage reduction strategy available…without changing your current mortgage and without the use of a biweekly mortgage plan.

Some homeowners can borrow 100% of their home equity. There are cases when homeowners can borrow beyond their total home equity; these loans are called over equity loans. The big but is most states have specific laws that govern home equity loans and these laws put a cap on how much a homeowner can borrow against his or her home equity.

An equity loan is still a loan so before the bank lets you borrow their money they need to see if you have the ability to pay the loan back. They will look at your income; dependents; monthly expenses; mortgage payments; and any other existing loans.

Your credit history comes to play in determining the rate the bank can offer you. The higher your credit score, the lower the rates they can offer you.

Borrowing against your home equity means borrowing against the portion of your home that you own. You can borrow against the entire equity of your home or even beyond it. But before you can do so there are many factors that will come into play such as your state laws, your ability to pay and your credit score.