How much home equity
can you borrow?
Cynthia E. Brodrick
When you're ready to tap your home equity, keep in
mind that banks often have a minimum amount that you have to borrow,
ranging from $1,000 to $10,000.
Obviously, they don't want to go through this paperwork
just for you to have a little spending cash for a weekend at Disney
World. Know how much money you need for your project, and find a
lender who'll give you what you need and not more than necessary.
Generally you can't borrow against all your
equity. Many lenders only let you borrow up to 80 percent to 90
percent of the appraised value of the home -- minus your debt. Let's
say that your house would sell for $150,000 and you still owe $120,000.
The bank would allow you to borrow up to $135,000 (90 percent of
the value) minus that $120,000 mortgage. In other words, you can
get your hands on only $15,000.
Be forewarned: A few lenders will loan you 100 percent
of your equity and sometimes even more! This is not a good idea.
These loans charge a higher interest, up to five points above the
prime rate. And remember: The more you borrow against home sweet
home, the greater your risk of losing it all.
For more on the costs of a home equity loan, read
"The cost of
a home equity loan."
To learn more about unscrupulous lenders, read this
Bankrate.com story, "Beware
of home equity deceptions."
-- Posted: April 24, 2000