I am interested in obtaining a home equity loan on my new condo. Since I have no knowledge on this matter, I decided to obtain some background information. It is now my understanding that most lenders will let you borrow up to 85% of the appraised of your home minus amount owed on the first mortgage.
I have a 20% down mortgage (financing 80%) paying only interest-only payments.
So consider this hypothetical situation:
I purchased my home for $200,000. Its official appraised value has risen to $230,000. I put down $40,000 and financed the remaining $160,000 on one mortgage and the amount owed on the mortgage is still $160,000 today as only the accmulated interest payments were made. How much can I “qualify” to borrow?
My guess is that I can borrow up to $230,000-$160,000 = $70,000 and only 85% of that. I just believe it is a good idea to borrow a lump some at a rate of prime+0% and pay off my students loans and credit cards. Dopers in the lending industry what do you think?
Limit vary from lender to lender and also depend on you crd. score and inc.
If by “official appraised value” you mean the appraisal for tax purposes, that is not a meaningful figure. When you apply for a home equity loan, the bank will do their own appraisal. In my experience, however, if you are a good candidate, the bank will bend over backwards to make the loan work (I just closed on a home equity line of credit).
Just make sure you understand the terms thoroughly and comparison shop. There is nothing “standard” about these loans.
A banker is not going to like this arrangement. It will raise a question as to your repayment ability, and also affect the length of time over which they’ll be willing to finance your home equity loan.
In short, the only reason you have any equity to qualify for a home equity loan is because of a booming real estate market, as you’ve paid nothing back on your original loan.
They may make you a loan, but your rates will be less favorable and your term shorter than normal.
Also:
Yes, but the math for this is quite different from what you posted above. Here’s how it goes:
230,000 X 85%=195,500
195,500 minus 160,000=35,500
If (and that’s a big if) the bank’s appraisal comes in at 230 k, the best you can hope for, under normal circumstances, is a loan of 35,500.
You see, they don’t want the total debt against the house to exceed 85% of appraised value.
As noted by other posters above, policy varies from bank to bank, and location to location. Just don’t expect too much under current economic conditions.