To determine how much home equity you could borrow on your los gatos home, it’s smart to first define what is home equity? Home equity is define as the balance of the money if you subtract all of your loans on the home from your home’s current market value.
For instance, let say your home is valued at $600,000 and you have 2 loans one at $450,000 and another at $50,000; then your home equity amount will be $100,000. Now, can you borrow 100% of your home equity?
The answer used to be yes, but then something called a recession happened and after the market crash of 2006, none of the lenders have any appetite to loan 100% loans on the value of the property.
So, the amount of your home equity loan and the interest rate will depend on several factors including:
Occupancy: Owner Occupied vs Rental
If the home where the home equity loan will be issued on is your primary residence, then most lenders will go as high as 80% of your home’s value. However, if you are renting the property, the lenders will reduce the loan amount not to exceed 70% of your home’s value. The rational for the lenders is that since the home is not owner occupied, it might be subject to damages and have deferred maintenance on it. In addition, lenders do have to allocate for rental vacancies in case you are unable to rent this home.
Loan to Value Ratio
Maximum loan-to-value ratio on non-owner occupied homes is 70% and 80% for owner occupied homes.
FICO Credit Score
It goes without saying that the higher FICO you have the lower your interest rate since the bank assumes that are taking lower risk that you might default on this new loan.
Some lender offer better terms if the purpose of the loan is for home improvements as opposed to vacation or buying a new car. This is good common sense lending practice since the lenders know that you could be adding value to this property by doing small kitchen or bathroom remodels which will add to the value of your house.
Feel free to Contact Us if you need to know how much you can borrow on your home.