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High debt loads but lots of equity. Can I get money for home improvement?

Question: Eight years ago I refinanced my home loan with a home equity loan because the bank was offering a cheaper interest rate than what I had and no closing costs.  I want to sell my home to get out of debt.  I need to fix some things before I sell it. How do I get a small home improvement loan without refinancing my loan?  I have lots of debt but I also have a lot of equity in my home.

Answer: Provided your home equity loan is the only loan against your home--that is, it is in the first-lien position--you should be able to obtain a second mortgage, or better, a home equity line of credit. Equity lines of credit are usually available with rates just slightly above the prime rate (3.25 percent today) and can provide maximum flexibility for your home improvement projects.

That said, if your income won't support much more debt, you will still have trouble borrowing new money, no matter the loan vehicle you choose. With lenders stung by losses in the downturn, underwriting standards have stiffened considerably. In general, you won't be able to leverage your home beyond about 80 percent of its present value, and your debt load often cannot be greater than 36 percent to about 41 percent of your monthly gross income.

Since home equity products are usually "portfolio" loans (lenders keep them on their books), there can be considerable variability in the rates and terms you might be offered, so you'll want to shop around your market to see what, if anything, can be made available to you.

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