The higher your score, the lower the risk you pose of defaulting on your loan, and the lower your interest rate may be over the life of the loan.

• The Lender will also review your payment history from your credit report.
  • If you have missed a payment on one of your debts in the past, that missed payment may more than likely be reported to the credit bureaus who will report a record of this late to your credit report.

Typically, lenders prefer to see that a borrower has a steady source of income for a number of years.

Wage Earners

• 2 years most recent W2 forms
• 1 month most recent paystubs

Self-Employed

• 1 to 3 years most recent tax returns – all schedules, all pages

Retired

• Proof of Retirement Income: Distribution letter, award letter, 401k balance, pension statement

Lenders look at the DTI ratio when you apply for a home equity loan. This is calculated by adding all your monthly payment debt obligations (i.e. credit report debt, 1st mortgage lien) to the potential payment for the new home equity loan and dividing the sum by your total monthly gross income.

• DTI requirements may vary from  lender to lender but, it is common to see a minimum DTI required of 43% or less.

The lender calculates this using your combined loan-to-value ratio (CLTV) = (Loan amount + mortgage balance)/ Home Value (Appraised or Collateral value Analysis ).

• Most Lenders will let you borrower up to 8-% CLTV and some may allow up to 90%

Home Equity Loans could yield a tax benefit if you are able to write off the interest you pay. The Internal Revenue Service (IRS) lets you write off some of the interest on a Home Equity Loan as long as you can show itemized deductions and meet certain requirements. Speake with your Tax Consultant for more details.