If you do not have access to a large sum of money, have maxed out all of your credit cards, and would like to have an addition added to your home, you may be tempted to apply for a home equity loan. With this type of loan, you will be responsible for paying your lender a monthly fee that includes part of the loan's principle and a fixed interest rate. Before going in over your head and agreeing to loan terms, do your homework to determine if a home equity loan is right for you. 

Determine How Much You Can Afford Each Month

Take the time to gather up your recurring bills and calculate how much you are responsible for paying each month. Add costs associated with fuel, food, medicine, and childcare as well as standard costs necessary for running your household. Tabulate the amount you earn each month and compare it to the amount needed to survive.

If you have a good bit of money left over at the end of each month, you may be able to swing things if you are approved for a home equity loan. If you tend to barely make ends meet, however, acquiring a loan could be detrimental to your livelihood and could result in you losing your home if you are unable to pay back the money that you borrow. 

Consider Your Job's Future And Unexpected Expenses

Reflect upon your career and the likelihood that you will continue working at your place of employment for many years to come. For instance, if you are a valuable asset to the company that you are employed by and believe that you have the potential to excel further and work your way up the chain of command, your job security will assist with paying back a home equity loan in a timely manner. If your job is on shaky ground or if you are not happy with your work duties, you may want to forego applying for a home equity loan.

Also, you must consider unexpected expenses, such as needing to purchase a new vehicle or dealing with an injury. If life throws you a curveball and you are already in debt up to your eyeballs, you may not be able to handle the juggling act and default on your home equity loan as a result. 

Compare Rates And Consider A Line Of Credit

If you are not pleased with the initial terms that you are provided with when meeting with a financial advisor at a lending institution, compare the rate with other lenders to determine if you are getting the best deal. If you still are not satisfied after investigating further, consider a home equity line of credit as an alternative to a standard loan.

With a line of credit, you will be provided with the opportunity to borrow money in small increments as the cash is needed. Your interest rate that is added to the amount you borrowed may fluctuate, though, so consider this if you would rather have a set rate. Contact a company like General Electric Credit Union for more information and assistance.