Home Equity Requirements by State

Understanding general variations in home loan requirements by state

There are several elements of the home equity borrowing process that vary by state. When you're preparing to obtain a home equity loan, consult your legal counsel and a Citizens Bank Home Loan Advisor to be fully aware of any home equity requirements or limitations in place in your state. While all states must abide by federal laws like the Home Equity Loan Consumer Protection Act and the Truth in Lending Act, be sure you're aware of the home loan requirements in your state in order to be fully prepared for the borrowing process.

Learn more about federal requirements for a home loan

There are several federal and state home equity requirements that a first-time borrower should be aware of before entering into any loan agreement. The Home Equity Loan Consumer Protection Act requires lenders to reveal terms, rates and conditions for home equity loans or lines of credit. They must include any miscellaneous charges, a clear outline of payment terms and the fixed or variable structure of the interest rate. The act also outlines the recourse of any individual who feels his or her rights have been denied.

The federal Truth in Lending Act, passed in 1968, created a standardized system to divulge costs associated with borrowing. Under the Truth in Lending Act, banks must show consumers not only what their costs are, but also how they are calculated. The act also allows borrowers to cancel transactions within a certain period of time.

Consider state requirements for a home loan, as they may contain additional requirements

There are often state requirements for home loans in addition to the federal laws. If a state law doesn't conflict with federal law, generally, the state law will apply. In fact, since some states had a truth in lending policy before the federal policy was put in place, the state law is generally adhered to first. Some home equity requirements that vary by state are as follows:

  • Usury laws: These laws limit the maximum amount of interest a lender is allowed to charge on a loan. The average interest rate offered may vary by state as well.
  • State tax rates
  • Length of closing period
  • Need for an attorney: Some states will require the borrower to have a legal representative look over the documentation before allowing you to sign. This protects your rights as a borrower as well as the financial institution.
  • Closing costs & fees: Closing costs are paid after you buy a home or refinance a mortgage. Typically home equity loans and lines of credit do not have closing costs associated with them. However, some states have these costs for documentation, property appraisal and attorney fees. You may find some states' requirements for home loans don't allow closing costs or cap them at a percentage of the amount borrowed. There may also be other fees such as an application fee or trust review fee that are associated with home equity products. It's best to talk to your lender about the potential costs and fees for a home loan to be sure you are prepared.
  • Prepayment penalties: The states of New Jersey and Pennsylvania, for example, do not allow prepayment penalties on home equity loans or lines of credit. Be sure to ask about any prepayment penalties that may apply to you.
  • Maximum loan-to-value ratio: Ask about the maximum amount you'll be allowed to borrow in terms of the loan-to-value ratio.

Understanding state variations in loan-to-value ratios and how they affect your borrowing options

Your loan-to-value ratio is a measure of how much equity you have in your home. Specifically, loan-to-value (LTV) is the total amount of liens (such as mortgages and home equity loans or lines of credit) on your property divided by the appraised value of the home. The higher the ratio, the more debt you are carrying. A lower ratio means you have paid off more of the home and may have more at your disposal to borrow from. Lenders will use your loan-to-value ratio to decide how large a home equity loan you qualify for. Keep in mind the maximum allowed loan-to-value ratio for home equity borrowing varies by state and often by lender.

Find detailed information on your state's home equity requirements from Citizens Bank

When you're ready to apply for a home equity loan or home equity line of credit, speak to a Citizens Bank Home Loan Advisor for home equity requirements in your state. Since there are many variables to consider when understanding home loan requirements, it's a good idea to also speak to a lawyer and tax professional. If you're ready to apply for a home equity loan, you can begin the process online today by answering a few questions about your borrowing needs and a Home Loan Advisor will be in touch to complete the application and walk you through the process.


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