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Home equity lending is back?

The ability to borrow against your home with a home equity loan or line of credit is picking up some speed, says Keith Gumbinger, vice president at HSH Associates, a company that tracks the mortgage market. Some lenders are treading back into the second mortgage market. It can be a savior for cash-strapped borrowers who need help to pay for home repairs, college tuition or medical bills.

But if you want to be considered by the bank, you’ll need to have all your financial ducks in a row. "Quite a number of banks since the financial crisis have been underwriting with stricter guidelines," says Michael Vittorio, president and chief executive of First National Bank of Long Island. Generally, a FICO score ranging from 620 to 700 is needed, a total loan to value between the first and second mortgage of 65 percent to 90 percent, as well as income verification, like tax returns, for the past two years.

"It's vital that homeowners be aware of the difference between a line of credit and a home equity loan," cautions Vittorio. A home equity line may have low interest rates today because they are based on prime, but they fluctuate and could be much higher next year. However, a homeowner can get a locked in or a fixed interest rate by taking a fixed rate term home equity loan. There's a big difference between the two. Make sure you understand what you are getting into.

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