Yes. All those short sales and foreclosures are dragging values down. Your home equity is now worth half of what it once was, right? Sigh. (Some houses have dropped much more!!)
If you live in Nevada, Arizona, Florida, Michigan or California, there’s a one in three chance (1/3) that you’re underwater. Look around you. Every third person you see, their house is underwater or close. And those who are not homeowners, chances are one in three (1/3), they have too much debt. How about this? The house is under water and you owe a bunch. That’s the double whammy. Therefore, 33% to 66% of people in those states don’t qualify for a home equity loan.
What does it takes to get a home equity loan? You have to have equity. How much? A loan agent from a major bank said they want to see 20% equity remaining. If your house is worth $500,000, your borrowing ceiling is $400,000. You owe $250,000 let’s say, then the bank is willing to lend you up to $150,000. (Of course, your credit, FICO score, has to be very good, and they’ll check your employment, earnings, etc.)
Nevertheless, it’s hard to know what banks want…THEY don’t know what they want. It’s so risky these days. Bank’s say when nobody knows what’s happening with housing prices and people just walking away from their houses. How do they risk price these loans?
As a home equity line holder, my wife and I watch our bill closely and treat it carefully. We’re concerned that if we’re ever late they may increase the interest rate, cut us back or tell us we have to pay it off. Luckily we have equity, but we just don’t want to hassle with the lender.
Finally, if you want a loan, you need lots of equity, good credit, a job, low debt, and a good reason…like fixing the house, college education. Vacations won’t cut it.