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Your credit rating is going to determine whether or not you are approved for a home equity loan as well as what kind of terms you are offered, i.e. loan amount, rates, terms, etc.. Your credit worthiness boils down to three key variables: your income, your loan-to-value and your credit history.

Below is a breakdown of the different criteria lenders use when deciding your credit worth.

Credit history
The amount of debt you encompass and all of your account activity is collected by the three major credit bureaus. This information is then accumulated in a profile called your credit report.  You are assigned a number between 300 and 850 based on your credit history. This number is called your FICO score and is named after the Fair Isaac Corp., the company that invented the credit scoring system.

Your credit report contains your identifying information, including your name, address and Social Security number. Also included is your credit history, such as when your accounts were opened, how much you owe, your available limits, and whether or not you pay your bills on time. In addition, public records are also listed on your credit report, i.e. bankruptcies, liens, foreclosures, repos, and/or legal judgments against you (including child support or tax cases). Lastly, any type of recent credit inquiry is going to be present.

It is wise to obtain a copy of your credit report once a year so that you can assure credit report accuracy. You can obtain a free credit report copy here.

Potential lenders are going to want to know how long you have been involved in your industry, how long you have been employed at your current job and how much money you make. Your debt-to-income is going to play a significant role. Specifically, how much of your pay check goes towards your credit card debt, mortgage, auto loan, etc., including the equity debt you are applying for. Most lenders will consider approvals for individuals that have a debt-to-income that is less than 40%.

When applying for a home equity loan, you will have to provide proof of income, specifically W-2s, tax returns, etc.. These items are necessary for approval and optimal interest rates. Keep in mind that you do not need this info when applying for a free equity loan consultation with Star Loan Services. However, we will need this info in order to finalize your request.

Loan to value ratio, or LTV
This is the ratio between what your house is worth and what you owe. For example, if your home is worth $200,000, but you still owe $160,000, your loan-to-value is 80%, because $160,000 is 80% of $200,000.

When you initially purchased your home, the LTV was easily determined by dividing the mortgage amount by the price of the home. However, when looking to utilize an equity product, things get a little more confusing. This is because your home's worth has changed since from when you first brought it. Lenders will obtain an appraisal of what your home's current fair market value is. (You can learn how to fight the assessment of your home) Then, your current mortgage balance will be added to the amount of equity loan you are interested in. They will divide the total by the current value of your home. This is how your LTV ratio is determined. There are things you can do build equity in your home.

Traditional lenders look to lend only 80% of the loan-to-value. However, Star Loan Services offers equity loans for up to 125% of your home's value. For example, if your home is worth $200,000, and you owe $100,000, you can borrow $150,000! Learn more about the equity loans we offer.



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