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U.S. Mortgage Market Statistics: 2018

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Homeownership rates in the United States have increased steadily since the height of the 2007-2010 housing crisis. Despite this, increasing interest rates and high home prices have kept the homeownership rate much lower throughout 2018 than it was during the era before the crisis.

Housing prices have recently begun to cool, however, which may create opportunities for some would-be buyers to be able to afford a home. But this does not mean that the homeownership rate will approach its previous peak levels anytime soon. Nonetheless, the overall housing market is in a healthy state, with very low levels of distressed loans.

Throughout this piece, we dig into a broad range of housing metrics to help paint a picture of the current state of the housing market, explain who gets home financing, how mortgages are structured and how Americans are managing our debt.

Summary:

  • Total mortgage debt: $10.3 trillion1
  • Average mortgage balance: $148,0602
  • Average new mortgage balance: $260,3863
  • Homeownership rate (share of owner-occupied homes): 64.4%4
  • Homeowners with a mortgage: 63%5
  • Median credit score for a new mortgage: 7586
  • Average down payment required: $28,9327
  • Mortgages originated in 2017: $1.75 trillion8
  • Share of mortgages originated by banks: 40%9
  • Share of mortgages originated by credit unions: 9%9
  • Share of mortgages originated by nonbank lenders: 51%9
  • Share of mortgages with a delinquency rate of 30 days or more: 3%20

Key insights:

  • While credit score requirements are still more lax than they were in 2012, the median credit score for a new mortgage in 2017 was 758, four points higher than it was in 20166
  • 3% of mortgages on single family homes are in delinquency, or at least 30 days past due. In 2010, mortgage delinquency reached 11.54%20

Homeownership and equity levels

In the second quarter of 2017, real estate values in the United States surpassed their pre-housing-crisis levels. As of the third quarter of 2018, the total value of real estate owned by individuals in the United States is nearly $25.6 trillion19, and total mortgages clock in at $10.3 trillion.1 This means that Americans have $15.2 trillion in home equity.12 This is the highest value of home equity Americans have ever seen.

However, real estate wealth is becoming increasingly concentrated as overall homeownership rates fall. In 2004, 69% of all Americans owned homes. Today, that number is down to 64.4%.4 While home affordability remains a question for many Americans, the downward trend in homeownership also corresponds to banks’ tighter credit standards following the Great Recession.

New mortgage originations

Mortgage origination levels have recovered from their housing crisis lows. In 2008, financial institutions issued just $1.4 trillion of new mortgages. In 2016, new first lien mortgages topped $2 trillion for the first time since the end of the housing crisis, but mortgage originations were still 25% lower than their pre-recession average.8 New first lien mortgages fell to $1.8 trillion in 2017. Through the second quarter of 2018, banks originated just $820 billion in new mortgages, which is $20 billion lower than it was at the same point in 2017.

As recently as 2010, three banks (Wells Fargo, Bank of America and Chase) originated 56% of all mortgages.13 But in 2017, Wells Fargo, Bank of America and Chase and all banks put together originated just 40% of all loans.9

“Nonbank” lending, both credit unions and nondepository lenders have continued to cut into banks’ share of the mortgage market. In 2017, credit unions issued 9% of all mortgages. Additionally, 51% of all mortgages in 2017 came from non-depository lending institutions like Quicken Loans and PennyMac. Behind Wells Fargo ($212 billion) and Chase ($108 billion), Quicken ($86 billion) was the third-largest mortgage issuer in 2017. In the fourth quarter of 2017, PennyMac issued $17 billion in loans and was the fifth largest lender overall.9

Government vs. private securitization

Banks tend to be more willing to issue new mortgages if a third party will buy the mortgage in the secondary market. This is a process called loan securitization. Consumers can’t directly influence which entity buys their mortgage, but mortgage securitization influences who gets mortgages and their rates.

Government-sponsored enterprises (GSEs) have traditionally played an important role in ensuring banks will issue new mortgages. Through the second quarter of 2018, GSEs Fannie Mae and Freddie Mac purchased 44% of all newly issued mortgages, down from 46% in the second quarter of 2017.8

Through the second quarter of 2018, private securitization companies purchased only 2% of all loans, notably higher than the .6% purchased in 2017.8 Prior to 2007, private securitization companies held $1.6 trillion in subprime and Alt-A (near prime) mortgages. In 2005 alone, private securitization companies purchased $1.1 trillion worth of mortgages. Today, private securitization companies hold just $438 billion in total assets, including $361 billion in subprime and Alt-A loans.14

As private securitization firms exited the mortgage landscape, programs from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) have filled in some of the gap. The FHA and VA are designed to help borrowers get loans despite having smaller down payments or lower incomes. FHA and VA loans accounted for 23% of all loans issued in 2017, and 22% in the first half of 2018.8. These loan programs are the only mortgages that grew in absolute terms from the pre-mortgage crisis. From 2001 through 2007, FHA and VA loans only accounted for an average $138 billion in loans per year. In 2017, FHA and VA loans accounted for $441 billion in loans issued.8 In 2017, 24% of all first lien mortgages were financed through FHA or VA programs.

Portfolio loans — mortgages held by banks — accounted for $524 billion in new mortgages in 2017. Despite tripling in volume from their 2009 low, portfolio loans remain down 29% from their pre-crisis average.8

Mortgage credit characteristics

As of 2017, banks have issued 31% fewer mortgages compared with a pre-crisis average between 2001 and 2007. This means that borrowers need better credit in order to get a mortgage. 8

The median FICO score for an originated mortgage rose from 707 in late 2006 to 758 in November 2018. 11

Despite the dramatic credit requirement increases from 2006 to today, banks are starting to relax lending standards somewhat. In the first quarter of 2012, the median borrower had a credit score of 781, 23 points higher than the median borrower in November 2018.11

From the third quarter of 2001 through the end of 2008, an average of 20% of all mortgages originated went to people with subprime credit scores (lower than 660). In the third quarter of 2018, subprime borrowers received just 9% of all mortgages.

Meanwhile, the share of mortgages issued to borrowers people with excellent credit (scores above 760) doubled. Between the third quarter of 2001 and the end 2008, just 28% of all mortgages went to people with excellent credit. In the third quarter of 2018, 57% of all mortgages went to people with excellent credit.6

Although banks tightened lending standards related to maximum debt-to-income (DTI) ratios for their mortgages in response to the market crash of 2008, they have recently begun to show signs of loosening those standards. For example, the average DTI ratio in 2017, 35.1%, was more than one point higher than the average DTI ratio in 2016, 34.0%. Nonetheless, the average DTI ratio is still lower than it was in 2007 where it was 38.4%.

LTV and delinquency trends

Banks continue to screen customers on the basis of credit score and income, but customers who take on mortgages are taking on bigger loans than ever before. Today, a new mortgage has an average unpaid balance of approximately $260,000 according to data from the Consumer Financial Protection Bureau.3

The primary drivers behind larger loans are higher home prices, but lower down payments also play a role. Prior to the housing crisis, more than half of all borrowers put down at least 20%. The average loan-to-value ratio at loan origination was 82%.10

In 2018, the average loan-to-value ratio at origination has fallen to 86% from 87% in 2017.10

As of November, 2018, the average loan-to-value ratio across all homes in the United States is an estimated 40%. The average LTV on mortgaged homes is 63%.16 This is substantially higher than the pre-recession LTV ratio of approximately 60%. Between 2009 and 2011, more than a quarter of all mortgaged homes had negative equity. Today, just 4.2% of mortgaged homes have negative equity.17

Americans continue to manage mortgage debt well. Current homeowners have mortgage payments that make up an average of just 15.1% of their annual household income.18

In quarter three of 2018, mortgage delinquency rates were 3.0%. This low delinquency rate is well below the 2010 high of 11.5% delinquency.20

Today, delinquency rates on mortgages fully returned to their pre-crisis lows, and can be expected to stay low until the next economic recession.

Mortgage debt service payments as a percentage of disposable personal income have fallen to their lowest levels since 1980, when the data was first recorded.

Sources:

  1. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS Dec. 18, 2018.
  2. Survey of Consumer Expectations Housing Survey – 2018,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed Nov. 28, 2018.
  3. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “ Average Loan Amount, 1-4 family dwelling, 2017.” Accessed Nov. 19, 2018.
  4. U.S. Census, Homeownership Rate for the United States [USHOWN], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/RHORUSQ156N, Nov. 19, 2018. (Calculated as percentage of all housing units occupied by an owner occupant.)
  5. “U.S. Census Bureau, 2017 American Community Survey 1-Year Estimates,” Mortgage Status, Owner-Occupied Housing Units. Accessed Nov. 19, 2018.
  6. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Nov.19, 2018.
  7. Calculated metric:
    1. Down Payment Value = Home Price* Average Down Payment Amount (Average Unpaid Balance on a New Mortgageb / Median LTV on a New Loanc) * (1 – Median LTV on a New Loanc)
    2. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “ Average Loan Amount, 1-4 family dwelling, 2017.” Accessed Nov. 19, 2018. Gives an average unpaid principal balance on a new loan = $260,386
    3. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Page 17, Median Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  8. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Page 8, First Lien Origination Volume from the Urban Institute. Source: Inside Mortgage Finance and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  9. Mortgage Daily. 2018. “Mortgage Daily 2017 Biggest Lender Ranking” [Press Release] Retrieved from https://globenewswire.com/news-release/2018/03/26/1453033/0/en/Mortgage-Daily-2017-Biggest-Lender-Ranking.html.
  10. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed Nov. 26, 2018.
  11. Quarterly Report on Household Debt and Credit November 2018.” Mortgage Delinquency Rates, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Nov. 28, 2018. A breakdown of data can be found here: https://www.newyorkfed.org/microeconomics/hhdc/background.html
  12. Calculated metric: Value of U.S. Real Estate – Mortgage Debt Held by Individuals
    1. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, Nov 28, 2018.
  13. Mortgage Daily, 2017. “3 Biggest Lenders Close over Half of U.S. Mortgages” [Press Release]. Retrieved from http://www.mortgagedaily.com/PressRelease021511.asp?spcode=chronicle.
  14. Housing Finance at a Glance: A Monthly Chartbook, October 2018” Size of the US Residential Mortgage Market, Page 6 and Private Label Securities by Product Type, Page 7, from the Urban Institute Private Label Securities by Product Type, Urban Institute, calculated from: Corelogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed Nov. 28, 2018
  15. ““Fannie Mae Statistical Summary Tables: October 2018” from Fannie Mae. Accessed Nov. 29, 2018; and “ Single Family Loan-Level Dataset Summary Statistics” from Freddie Mac. Accessed Nov. 28, 2018. Combined debt-to-income ratios weighted using original unpaid balance from both datasets.
  16. Calculated metrics:
    1. Mortgages Houses LTV = Value of All Mortgages / (Value of All Homes – Value of Homes with No Mortgagee)
    2. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, Nov. 28, 2018.
    3. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, Nov. 28, 2018.
    4. U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates, Aggregate Value (Dollars) by Mortgage Status, Nov. 28, 2018.
  17. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Negative Equity Share, Page 22. Source: CoreLogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed Nov. 28, 2018
  18. Survey of Consumer Expectations Housing Survey – 2018,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed Nov. 28, 2018.
  19. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS Dec. 12, 2018.
  20. Board of Governors of the Federal Reserve System (U.S.), Delinquency Rate on Single-Family Residential Mortgages, Booked in Domestic Offices, All Commercial Banks [DRSFRMACBS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DRSFRMACBS Dec. 12, 2018.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Tendayi Kapfidze
Tendayi Kapfidze |

Tendayi Kapfidze is a writer at MagnifyMoney. You can email Tendayi here

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Is Buying an Investment Property Right for You?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Real estate has always been a popular strategy for building wealth. Beyond amassing equity in the house you live in, you could possibly turn a profit by purchasing investment properties and charging others rent. In an ideal situation, an investment property could rise in value while renters foot the bill for the mortgage and even repairs.The good news for investment-property owners is there is money to be made in being a landlord. A 2018 study by apartment search website RENTCafé found that millennials alone spend approximately $93,000 in rent by the time they’re 30.

However, buying an investment property isn’t as easy as purchasing a house you plan to live in yourself. Not only are the loan eligibility requirements stricter, but you’ll likely have to come up with more cash. If you’ve been thinking about purchasing your first investment property, here are some factors you should consider first.

You may pay higher interest rates. Lenders charge higher interest rates when they believe there is a higher risk that the borrower will default. Investment properties are considered riskier than buyer-occupied homes because lenders figure people are likely to try harder to pay the mortgage on the home they live in than they would for an investment property if times get tough. As a result, the interest rates are typically a point or more higher for investment properties, said Rick Bettencourt Jr., a mortgage professional based in Danvers, Mass., and board president for the National Association of Mortgage Brokers.

Interest rates on multi-unit dwellings tend to be the highest of all. “Buying an investment property that’s a multi-family unit is the riskiest type of home loan that you can get,” Bettencourt said. As with other types of home loans, the lower your credit score, the higher the interest rate you’ll pay. Rising interest rates, such as in the current environment, will also likely have an impact on the buyer’s borrowing power. As mortgage rates rise, investment properties may stay on the market for a longer period of time, Bettencourt said.

You may need a larger down payment. When you buy a house that you plan to live in, many lenders let you put down less than 20% as long as you pay mortgage insurance. However, mortgage insurance is not an option for borrowers who are buying investment properties. Borrowers will typically have to put down 20% in order to be approved for a loan — and to get the lowest rates, expect to put down 25%, Bettencourt said.

You’ll likely need more in cash reserves. Not only will you need to come up with the cash for the down payment, but lenders also typically require investment property buyers to have enough stashed away to cover several months of mortgage payments. A good rule of thumb is to have six months of mortgage payments, so if your mortgage payment is $2,000, you’ll need $12,000 Bettencourt said. Assets held in checking and savings accounts, CDs, mutual funds and retirement accounts can all count toward your reserves.

Rental income may be included in your debt-to-income (DTI) ratio. Lenders will consider how much income you have relative to debt when determining whether they’ll lend you money and how much you will qualify for. They want to know that despite current debt obligations, you have enough money coming in to pay the mortgage. When you buy a rental property, lenders not only consider your current income, but they consider how much money you could potentially make charging rent. That means they calculate a higher income for you than you currently have, and as a result, you could likely qualify for a more expensive rental property than a house you intended to live in.

Your credit rating may be more important. Because lenders consider investment property financing a riskier type of loan, they’re going to be looking a lot harder at your credit score when determining whether to lend you money. To get the best rates, many lenders will look for a minimum score of 720, but if you can get your score in the 740 to 760 range, that would be ideal, Bettencourt said.

You may incur other costs. Don’t just consider the costs of buying the property — also factor in whether you’ll be able to maintain it. Could you afford the costs of hiring contractors when you need repairs? Have you considered the costs of property maintenance and utilities?
“If the cost to maintain the property is going to be expensive, that will eat into any of your profits,” Bettencourt said. Also, consider whether you’ll be able to pay the mortgage if you’re between tenants for a long period.

Financing your investment property

Once you’ve weighed these factors and decided that an investment property is for you, the next step is determining how to finance it. Here are some options to think about.

Conventional loans. If you have a high credit score and assets, a conventional loan could be your best bet. Keep in mind that conventional lenders likely will have the strictest requirements. For example, Wells Fargo requires borrowers to have two years of property management experience in order to use potential rental income to help qualify for the loan.

Home equity loan or HELOC. Depending on how much equity you have in your principal residence, you may be able to leverage it to pay for an investment property. One reason this may be a good option: Home equity loans and home equity lines of credit, or HELOCs, typically come with lower interest rates than investment property loans because they don’t carry as much risk. However, there’s always the risk that if your investment property struggles and you can no longer afford the payments, you could end up losing your house as well.

Financing through the seller. In some cases, owner financing may be available. With such an agreement, you and the seller would decide on the terms of the loan and you’d make payments directly to the seller rather than going through a traditional lender. Without a lender, the requirements may be less stringent and there may be less paperwork involved. If you finance through the seller, know that the transaction might not be on your credit report unless the seller reports it to a credit reporting agency.

Loans from private lenders or investors. If you’re looking for a loan with more flexibility, you may be able to get it by finding a private lender or investor who is willing to underwrite your deal. They may be more willing to negotiate with you about the terms of the deal than a traditional lender. Some peer-to-peer lending networks bring together borrowers with potential investors for real estate projects.

FHA loans and VA loans. Many homebuyers find loans backed by the Federal Housing Administration and the U.S. Department of Veterans Affairs appealing because they allow you to put down less than 20% on a property. FHA loans allow you to put down as little as 3.5%, while VA loans can be taken out with no down payment. For the most part, you can’t use FHA or VA loans for purchasing an investment property because they are designated for owner-occupied homes. But there is an exception: If you buy a house with up to four units and live in one of them, you may be able to satisfy that requirement.

Buying your first investment property can get you started on building your own real estate empire. But like all investments, real estate comes with risks. The housing market could crash or you could be stuck paying the investment property’s mortgage between renters. Before you make such a major investment, it’s important to consider how you would handle a downturn in the housing market or other potential challenges. If you do decide that buying an investment property is for you, do your research and ensure that your financing strategy will benefit you in the long term.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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7 Tips for Taking Out a Home Equity Loan

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If you are a homeowner looking to borrow a hefty sum, chances are you’ve already considered a home equity loan. Home equity loans are granted based on the equity value of your home — that is, the overall value of the property minus the amount owed on your mortgage.Tapping into this equity is a great way to get access to funds for large home improvement projects or financial needs like paying for college, but this option should be exercised cautiously. With your home as the main collateral, foreclosure becomes a serious risk if you fail to pay back your lender. As the borrower, it’s also important to fully understand your loan agreement before you sign, especially in today’s climate of rising interest rates and changing tax laws. Here are a few tips to get you started in the right direction:

1. Consider all options before taking out a home equity loan

Home equity loans are typically the first form of borrowing that comes to mind for homeowners, but it’s good to be aware of other options. Depending on your financial goals, a home equity line of credit (HELOC) might make more sense. Unlike the fixed sum of a home equity loan, a HELOC is a fluid line of credit that allows you to borrow what you want within a credit limit and pay back only what you borrow. It’s a good choice for people who want the option to borrow a large sum without necessarily commiting to the debt up front.

Just like credit cards, HELOCs vary drastically. According to the Consumer Financial Protection Bureau, they usually have a variable interest rate, but borrowers should make sure they understand all stipulations of the loan agreement before signing. These include when they can withdraw funds (ask about a minimum wait period and maximum draw period), additional closing costs and any minimum requirements surrounding the home’s value. If the value decreases significantly, lenders may choose to limit your credit line.

Other borrowing options for homeowners include cash-out refinancing and personal loans. Cash-out refinancing is meant for homeowners looking to lower the interest rates on their mortgage and gain access to additional funds. These typically make the most sense for borrowers who need a significant additional amount and should only be considered when the terms of the new agreement are better than those of the original mortgage.

Keep in mind that all of these borrowing methods put your home at risk and can include significant closing costs. If you only need to borrow a small sum on a short-term basis, you might be better off exploring your options with personal loans.

2. Know tax rules

The Tax Cuts and Jobs Act of 2017 understandably raises concerns for many prospective borrowers, but there are really only a handful of changes that relate to home equity loans and lines of credit.

The first revolves around paid interest and how you can deduct it from your taxes. According to the IRS, the new law states that interest paid on home equity loans and lines of credit is only eligible for deduction if the loans are used to “buy, build or substantially improve” the taxpayer’s principal residence. This means that you won’t be able to deduct interest on a loan used for something like college tuition.

Paid interest deductions are also limited now to homes with mortgages of $750,000 and less, but with the average 2018 new U.S. mortgage of $260,386, this cap isn’t likely to affect the majority of borrowers.

3. Know when long-term debt doesn’t make sense

Once again, home equity loans aren’t the right choice for every borrower. If you’re considering taking out a loan to finance something short-term, like a luxury vacation or clothing, you’d be better off looking into other options that don’t put your house at risk.

4. Know when long-term debt makes sense

Home equity loans and credit lines are better suited for borrowers looking to make long-term investments that add value to their property or create a higher earning potential for their household. This would include things like college tuition and remodeling projects.

5. Keep your total home loan debt below 80%

When it comes to deciding how much money to let you borrow, lenders use what’s called loan-to-value ratio (LTV), which is calculated by dividing the loan amount by the value of your property. While this term usually refers to mortgages, the numbers apply similarly to home equity loans and how much a lender will let you borrow.

In order to qualify for a home equity loan you should maintain a minimum of 20% equity in the home — or said another way, you should always keep your total loan debt below 80%. If your total loan debt exceeds 80%, your lender may ask you to take out private mortgage insurance (PMI). The amount you pay for a PMI will vary based on your LTV and credit score, but ultimately it’s something extra you’ll have to buy to protect the lender — not you.

Another reason to keep your total debt below 80% is to maintain a financial cushion in the event that you suddenly need to sell your home. Using the same logic as the lenders, this ratio ideally would allow you to cut your losses, even in the event that you were forced to sell at a lower amount or with outstanding debts to pay.

6. Shop around

Like anything else, the best way to get a fair loan agreement is to shop around. Ask friends for lender recommendations, and talk to as many of them as you can. Have them go over agreements with you and be sure you understand all of the terms, conditions and fees involved. Once you’ve received a few different loan plans, don’t be afraid to negotiate and make them compete for your business.

According to the Federal Trade Commission (FTC), lenders and brokers have been known to offer different prices for the same loan terms — often because they’re allowed to keep the difference. A good way to start the negotiation process is to ask a lender to write down all the costs of the loan and then ask them to waive or lower certain components. Use a sheet like this one to compare final terms and get the best deal.

7. Have a plan

Don’t wait until your loan agreement is signed to think about the repayment process. Your repayment plan will vary depending on the term and interest rates of your loan agreement. Generally, the longer the term of your loan (or the longer it takes you to repay it), the more you’ll end up paying. Save money on your loans by making a plan to pay them off as soon as possible. By contributing even a little more each month, you’ll end up saving a lot on interest.

Home equity loans are a good resource for homeowners in good financial standing who need funds for a long-term investment. But unlike other forms of debt, these loans could literally cost you your home, and should only be taken out with a solid repayment plan in place.

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Larissa Runkle
Larissa Runkle |

Larissa Runkle is a writer at MagnifyMoney. You can email Larissa here

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