California Home Equity Loan

A home equity loan in California is a loan or line of credit in which the value of a home is used as collateral. There is more than one type of home equity loan, and what a person may choose is dependent upon the intended use of the loan. Some 100% home equity loans, or “piggy back” loans, are often used by individuals who do not have any money to put down on a home. This type of loan allows them to access 100% of available equity; in other words, if a home is worth $150,000 and the mortgage balance is $100,000, the individual can obtain a loan for the other $50,000. A 125% home equity loan allows a person to go above and beyond his or her home’s value; no equity is required to secure the additional 25%. This sort of home equity loan is considered to be very high risk, as the interest rate runs much higher than usual rates and puts the homeowner in a position of owing more than his or her home is worth. Yet another type of home equity loan available in California is the low loan-to-value home equity loan or line of credit. This loan variety is granted to homeowners who only want to borrow against a portion of the available equity of their home. The cash or credit can be used for home improvements, bill consolidation, or other large expenses. The interest rates on California home equity loans can be variable or fixed but are lower than personal loans or lines of credit. Additionally, interest paid on a home equity loan is tax deductible, whereas interest on a personal loan is not.

Acquiring a California Home Equity Loan

Qualifications for a home equity loan in California can vary from lender to lender, but most banks and finance companies have the same basic requirements. A credit check is performed to determine if the potential borrower has any loans in default or has been late on any mortgage payments. Household income and debt-to-income ratio are also considered, as is the value of the property versus the loan amount requested. Additional criteria may also be evaluated during the application process. If the potential borrower has a positive history with his or her personal bank, it is recommended that he or she check with them first about a possible loan. Some banks and financial institutions offer lower rates or larger home equity loans to current customers. However, caution should be exercised when pursuing a home equity loan or line of credit in California. According to a news story by ABC in 2008, home equity credit lines or available loan amounts can plummet with the value of a home. Homeowners can discover that they have $0 available on their credit line when they previously had $15,000, or no accessible equity to cover a loan if they need to sell in a declining market. Such an issue can occur nearly overnight, and has made some California banks skittish about equity loans and credit lines. For example, Wells Fargo currently only allows consumers to borrow 40% of available equity; large loan-to-value equity loans are not available.