eligibility for home equity line of credit

Someone explained to me that you are only eligible for what you put down plus the difference of what you paid to what it was appraised for.

Is this true?

Can someone clarify for me? Also, how does a piggy back loan affect this? Is that amount subtracted from the amount you are eligible for?

TIA!

Ok here goes. The line of credit is a certain percentage of the Whole loan amount. Say for arguement sake 225K and you have a 80-15-5 loan
80 is the big loan
15 is the line of credit
5-is 20% down of the line of credit

SOO, for a 225K loan, you would have a line of credit of 34K, big loan of 180K and have to put down 11K.

ALL of that adds up to the purchase price of 225K

The appraised value of the home is what the Bank will go off of for the loan. The sellers can say their house is worth 250K, but if the bank thinks it's only worth 225K they either have to agree with the sale or decline it. If they decline the appraised value, you lose the house.

Make sense?

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Posted by Sweetie2004

It does! We bought the house already but we are interested in getting a loan for home improvements. Would you know what the eligibility would be on that?

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That I am not sure about. I do know that if you want to take a loan out against the house there must be some equity built up. How long have you owned it?
We opened a line of credit through our bank, that we will never use, but that could also be an option depending on what and how much renovations you plan.

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Posted by Sweetie2004

It does! We bought the house already but we are interested in getting a loan for home improvements. Would you know what the eligibility would be on that?

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Depends on how long you've lived there. But...if it's a least a year, you could get it reappraised (if it's less than a year, most banks will go with the purchase price.)

For example, you paid 300,000 for the house...you 80% mortgage is for 240,000, and the house is now worth 350,000. That means that you have 90,000 of equity in the house...you could pay off the 15% loan of 45,000 and have 45,000 left for home improvements if you can find a bank with 100% LTV (loan to value) such as citibank or washington mutual. Some banks only do 90 or 85% LTV, but there are ones that do 100...the interest might be a little higher though.

Good luck.

ETA: Line of credit is better than a loan in my opionion...a Line is like a credit card, you only pay interest on what you use, and loan is where you get the whole amount up front and you are paying interest on all of it.