In Canada, people avail home equity loans to get help with home renovations, repairs, and educational expenses. It is difficult to apply on your own if you have no idea about the housing market and mortgage trends. Mortgage agents are professionals having a deep knowledge of the housing market and mortgage trends. They will help you to smoothly qualify for this loan. In this blog, you will learn what equity-based home loans are, lenders’ requirements, and how agents will help you secure this loan.
What are Home Equity Loans In Canada
In Canada, these are the loans that you get against your home equity. These are separate loans from the primary mortgage and come after the first mortgage in the repayment priority list. They have a high interest rate due to the great risk for lenders. As the primary mortgage lender get paid first in case of default. There are two types of home equity-based loans, i.e., second mortgage and HELOC (home equity line of credit).
In case of a second mortgage, you have to repay the whole approved loan amount with a fixed interest rate. In the case of HECLOC, you will repay only the amount you used and pay interest only on the used money.
Key Factors Lenders Consider for Equity-Based Home Loans
Typically, lenders look for the following factors before approving equity-based home loans.
Now, we will discuss each point in detail.
Home Equity
Minimum 15-20% home equity is required to qualify for a home loan. Lenders strictly consider it to approve equity-based loans.
Credit History
Lenders never ignore your credit history. Your bad credit history gives down your impression on lenders and reduces your chances of getting a loan.
Debt-to-Income Ratio
Your debt-to-income ratio must be low. A high ratio shows that your debt amount is higher than your income. So, how can any lender give you a loan when you are already struggling with debts?
Appraisal
Lenders demand an official valuation of our property based on current market rates. This is necessary to calculate your home equity.
How a Mortgage Agent Helps You Qualify
An agent helps you in the following ways to qualify for the home equity loan:
Let’s explain each point in detail for better understanding.
Financial Assessment
Agents will analyse your credit history, monthly budget, home equity, debt-to-income ratio, and other financial challenges to help you determine which lender will pay you the best mortgage rate for your home equity.
Equity Calculation
They help you to calculate your home equity and guide you on the minimum equity requirements for a home loan. You must have 15-20% equity in your home to get loan services. You can calculate your home equity using the following formula:
Home Equity = Current Market Value of home – (Mortgage Balance + Other Debts Secured by Home)
Lender Matching
Agents have a wide network of lenders. Based on your home equity, income, job stability, and financial conditions, and other related factors, agents will guide you about the best lenders that give you the desired interest rate.
Debt-to-Income (DTI) & Credit Score
If you have a high DTI, agents will guide you to improve it. Low DTI helps in getting the best mortgage rates. Credit history also has a great influence on securing a home loan. A bad credit score can disqualify you from an equity-based home loan. To improve your loan chances, you must have a 660+ credit score.
Stress Test Navigation
A stress test is required for federally regulated lenders. Agents will guide you about this test and help you qualify stress tests to help you get the home loan.
Product Guidance
The agent will tell you about all the available equity-based mortgage products, including home equity loans, HELOC, and other related options. This guide helps you choose the options that give you maximum benefits.
Application and Closing Support
Agents will help you in filling the application form for a home equity loan. Once the loan gets approved. They will not stop sporting you. They will still guide you on how you can fulfill all the terms and conditions mentioned in that loan.
Conclusion
Loans based on home equity help people in Canada to get financial relief and invest in education and home renovation. Agents will help you get this financial relief. Though it is a completed process to qualify for this loan. You have a stress test, prepare documents, and negotiate with lenders. The situation becomes tougher if you have an unstable income and a bad credit score. Agents will help you to overcome these difficulties and help you get the best rates based on your financial condition and goals. In Canada, Mortgage Squad Advisors has a team of professional agents that guide you through each step to qualify for this loan.
Frequently Asked Questions
How do home equity loans work in Canada?
In Canada, you can get these loans based on your home equity. You can use this loan amount for education and home repairs, and other financial matters.
How do you qualify for home equity?
You can qualify for this if you have 15-20% minimum home equity and you have a 660+ credit score.
Can I apply for a home equity loan without a mortgage agent?
Yes, you can apply, but it will be difficult for you to reach the maximum lenders for better interest rates. Agents have a wide lender network that assists you in reaching the lender who can offer you the desired rates.
Does a mortgage agent guarantee approval for a home equity loan?
No, the mortgage agent does not guarantee you the approval of a home loan. As a lender, consider your credit history, equity amount, and DTI ratio for approval.
How long does it take to get a home equity loan in Canada?
It totally depends on your financial situation and lender policies. It may take from weeks to months, depending on the complexity of the case. Missing documents,a bad credit score, and other factors may delay this process.