Needing a home equity loan in Vancouver, Burnaby, Surrey, or elsewhere in the Lower Mainland? Renovating your home in Kelowna, but needing the funds to begin? Whether it's consolidating your debt or expanding your business, applying for a loan against your home equity can provide so many benefits. Home equity loans can be secured easily and quickly to help you with the following:
+ Consolidating Your Debts
+ Paying Property or Income Taxes
+ Home Renovations
+ Expanding Your Business
+ Anything You Need or is Unexpected!
What exactly is an equity loan, and how do I get one in Vancouver (or elsewhere in B.C.)?
An equity loan is typically a loan secured against your property, behind your first mortgage. It represents an additional loan which is smaller than your first mortgage and based on your available equity. An equity loan will permit you to borrow against the property value, less any mortgage owing on the property. The equity in your property is the difference between the current property value, less the balance of your first mortgage.
Property Value: $500,000.00
1st Mortgage: $300,000.00
Equity: = $200,000.00
Of the available equity, only a certain percentage may be utilized for an equity loan. In most urban areas, you may obtain an equity loan up to 80% of the value of the property. This percentage of the value of the property is called the “loan to value – LTV” ratio. It is a number that lenders use to determine the level of risk they are taking on when lending on a secured loan.
Property Value: $500,000.00 x 80% (LTV Ratio) = $400,000.00
1st Mortgage Balance: $300,000.00
Maximum Equity Loan Available: $100,000.00
For existing property owners in Vancouver, Burnaby, or other cities in B.C., the equity lenders' LTV ratio will vary depending on the following factors:
Location of the Property
As the property location becomes more rural, the LTV ratio is reduced accordingly. The more remote the property, the smaller equity loan.
Depending on whether the property is residential, owner-occupied, rental, commercial, or recreational will also influence the LTV ratio.
Current Mortgage Details
Equity lenders will request to confirm what is currently owed, to whom, and under what conditions. Equity lenders are more inclined to lend in behind an institutional 1st mortgage, as opposed to a private or non-traditional 1st mortgage. This seems to be an industry standard and may affect your chances of getting a second mortgage. Equity lenders simply do not like to park their loans behind other equity lenders.
Provided you have the available equity on your property in B.C., the process of getting an equity loan is not too difficult. Equity lenders have a way to manage their risk when your property is securing the loan. Even with poor credit and low income, your chances of being approved for an equity loan are good, provided you have the equity. An equity loan is easier to qualify for than other types of loans because you are putting your property up as collateral.
Typical Documents Required for An Equity Loan
All mortgage lenders require certain documents when processing a request for financing. The typical documents required will include the following:
Completed Application Form
This will offer the lender an overall snapshot of you and your current financial situation. You should complete the application fully with as many details as you can offer. The more information you can share, the better the potential terms of the equity loan.
The lender will obtain your permission and access your credit bureau as part of the process. This will offer insight into your credit repayment history. Pledging your equity certainly helps, but lenders must assess the loan request with the level of risk. The lender simply wants to minimize any potential losses regarding his loan. Equity loans are easier to qualify for if you have bad credit, but a credit check is still necessary.
Income & Employment Information
The equity lender may ask for basic employment and income information, such as tax returns, a pay stub, or a job verification letter. This demonstrates the borrower’s ability to repay the loan. The income verification process through an equity lender is far less rigorous than that of a typical bank. The equity lender may exercise far more flexibility regarding the income information, but like the banks, they must verify that you have proof of income and the ability to repay the loan.
The lender will require a current appraisal of the subject property which will reflect the fair market value. This will help the lender calculate the loan to value ratio when determining the loan details. The appraisal report will offer the lender a detailed analysis of the property including the value, interior and exterior photos, and how it compares to similar properties.
Additional Documents & Information
Additional paperwork required by the lender may include:
1. Copy of Home Insurance Policy – the equity lender must ensure you have adequate insurance coverage over the subject property. They want to be certain the house or structure is insured fully in case of a disaster.
2. Copy of Current 1st mortgage Statement – the lender will need to confirm the loan amount(s) current owing and secured against your property. This again will assist the equity lender in calculating the overall loan to value ratio.
3. Contact Details of Lawyer/Notary – the borrower will need the services of a lawyer/notary who will review all loan documents and provide the borrower with independent legal advice. Prior to entering into a loan agreement, the borrow must consult a legal representative, who will review the loan papers and give their professional opinion of the nature of the loan.
4. Void Cheque or Pre-Authorized Debit Form – the equity lender will collect either a void cheque (in some very rare cases, postdated cheques) or a pre-authorized debit form for your bank. This will allow the equity lender to collect the monthly loan payment from the borrower on a regular basis.
The process of getting an equity loan whether you're in Vancouver, Burnaby, Victoria, Kelowna, Langley, or anywhere else in B.C. can be rather simple and quick. As you can see, there are certain documents which are required, however they are not scrutinized like the banks. Equity lenders are far more flexible and take a make-sense approach towards the loan approval. It is best to shop around and look for the best loan offer which meets your situation. Finding the best equity loan will help save you money and much more.
For any questions, reach out to us at firstname.lastname@example.org
Silver Hill Blog
Jim Horvath is the principal broker and director of Silver Hill Mortgage Corp., arranging private mortgage loans in British Columbia for over 25 years.