Need help understanding a home equity line of credit?

Question

My husband and I bought our house 2 years ago. It is our starter house and we anticipate moving out in the next 3-4 years. We are having a sewage system put into our neighborhood and must pay a $3900 tap in fee in addition to the amount it will cost to pay a plumber to dig a line from our house to the sewage system. We are looking at about $6000 that we do not have readily available.

Along those same "home improvement" lines, I would like to renovate our kitchen. I thought that it might be a good time to look into a home equity line of credit to a.) help pay for our sewage and b.) help us pay to renovate our kitchen. I have only done a little reading on the home equity loans, and we can get a good rate from our credit union at 4.99%. I am wondering if we would get approved for $8,000, and is it a smart move to get the home equity loan?

Answer 1

Home equity loans are a great option of getting loans to fix up your house or for anything else. What you can do s good to the credit union, fill out an application for the loan, and within a few days or so they will contact you on how much you will be able to borrow. Good luck!

Answer 2

First, always always check out 2-3 other banks and see what rates they will give you.  It is a tough market out there and they are fighting for business - your business.  

Second, I would need more details.  Are you getting a fixed rate loan or a line of credit?  There are two home equity loans out there.  The fixed rate/lump sum and the variable rate/ line of credit that works like a checking account.  A variable rate might do you well if you can pay it off this year.  The rates are not going to sky rocket any time soon.  But if it will take a while to pay back - a fixed rate might be better.

I can't tell if $8000 is good or not without knowing how much you paid for the house and how much the house is worth - otherwise known as your equity.  Your loan to value is a necessary number in order to come with your rate and loan amount and whether it is a "good deal".  

Of course, it is always best to save up the money and pay for things without borrowing.  Have a goal of say $10,000 in  a money market account and borrow from yourself.  Then, pay it back to yourself in little chunks.