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Dead or Alive? The Home Equity Loan

Long gone are the days of the 80/20 "piggyback" loan. So what is left? While the credit crunch felt around the world has left us without a secondary market to purchase second lien financing--known as a second mortgages or home equity loans--the market is not dead just yet.

Mortgage Lenders Offering Home Equity Loans

Large self-funding and self-servicing banks such as Wells Fargo and US Bank are still in the game of offering second mortgage financing. In addition, there are many credit unions that offer their members these attractive loans, as well as niche lenders around the country. HSH.com showcases home mortgage lenders willing to take on a loan like this.

Home Equity Loans in Today's Market

While the lenders offering this type of mortgage are now limited, the loans out there are not all that bad for consumers. With rates lower than virtuallyall other forms of borrowing, and loan-to-value ratios as high as 90% in some states, the home equity loan may still be attractive.

Before you get too excited that home equity financing is still out there, keep in mind that qualifying is tougher than ever. Take note of the following ways in which qualification criteria will limit your access to home equity loans:

  1. The comparable homes selling in your neighborhood will be scrutinized by the lender. They will err on the side of caution, possibly making your loan-to-value ratio higher than you or your loan officer anticipated.
  2. Credit scores must be high and credit histories should be impeccable. Whereas a stated-income, 600-credit-score borrower once qualified, your FICO score had better be up in the excellent range to get this loan now. Lenders only want to make a second loan to a perfect borrower, usually with a FICO score above 720.
  3. Lower debt-to-income ratios will be required. Moreover, the way in which income and debt are calculated in those all-important ratios may be more restrictive than in the past. However, a factor that works in your favor is that average mortgage rates are still very low.

With credit markets still troubled, the availability of home equity financing is highly variable. You'll need to scour your local market thoroughly to see what offers are available to meet your needs. If you want to take advantage of current mortgage rates with a home equity loan, contact a mortgage lender to determine whether you qualify.

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