home equity

Home equity loans, HELOCs tough to find

Signing loan forms
Highlights
  • Lenders still reluctant to sell home equity loans, HELOCs.
  • Products are easier to get in states where home values are stable.
  • Top credit scores more likely to result in success.

Today's homeowners are finding it far more difficult to obtain a home equity loan or line of credit.

Lenders scrambling to cover losses are tightening standards and taking a close look at housing values. Fewer homeowners now qualify for home equity products, and experts say uncertainty in the housing market is only exacerbating the problem.

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"People were used to thinking they could easily get $50,000 in credit," says Cameron Findlay, chief economist for LendingTree.com. "That's just not the case anymore."

However, what might seem like a horrific nose dive in home equity lending is merely a return to more normal times, Findlay says. During the height of the housing boom in 2006, banks were extending loans of up to 100 percent -- and sometimes even more -- of a home's value.

Homeowners were using HELOCs to take vacations and buy boats. More recently, falling real estate values have evaporated what little equity some homeowners have.

According to research firm First American CoreLogic, more than 23 percent of homeowners are "underwater" in their mortgages with negative equity in their homes.

Many other homeowners have less than 20 percent equity in their homes, the traditional minimum requirement a lender looks for before approving a home equity loan.

In contrast to a year ago, the slowdown in home equity lending is not due to a lender's lack of capital; instead, it's the result of a lack of qualified borrowers.

"Most of the issues are now on the qualification side," Findlay says. "You really need an 80 percent loan-to-value max. It is not that the cash has evaporated, it is just being redistributed."

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While the situation may seem bleak, it's not hopeless. Here are some tips if you're struggling to land a home equity loan or HELOC.

Turn to smaller lenders

While large banks have been quick to turn off the valves on home equity loans, many small banks are still willing to lend, says Frank Ruzicka, a mortgage banker at Cornerstone Mortgage Inc. in St. Louis.

However, Ruzicka -- who works with several local credit unions -- says that while it is still possible to get a home equity loan, the underwriting standards remain much stricter. Lenders are also taking a harder look at appraisals and occasionally requiring more than one.

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