Your Money: Home-equity loans tougher to get

— -- Back when the real estate market was flying at 30,000 feet, getting a home-equity line of credit was a pretty straightforward process. You called a toll-free number, asked for a loan, and within hours, a guy with a suitcase full of money showed up at your door.

It's a lot harder now. Some lenders have stopped offering home-equity lines of credit and home-equity loans altogether, even to borrowers with good credit. And lenders that still offer the loans are being a lot more selective.

The lenders that have cut back on home-equity loans and credit lines are mainly those that raise money by selling the loans to investors. Investors have stopped buying such mortgages since the subprime market collapsed, says Bob Walters, chief economist for Quicken Loans, which has stopped offering home-equity loans or lines of credit.

Walters says investors have backed away from second mortgages for the same reason they've abandoned jumbo mortgages (those that exceed $417,000). Because investment mortgage giants Freddie Mac and Fannie Mae won't buy jumbos or second mortgages, these loans are considered riskier than so-called conforming loans.

But just as community and national banks are offering jumbo loans, many banks, savings and loans and credit unions are still providing home-equity loans and credit lines, says Keith Gumbinger, vice president for HSH Associates, a publisher of mortgage information.

These lenders typically use customer deposits to finance loans, so they're not beholden to Wall Street, he says.

Still, these lenders are unwilling to take big risks with their money, especially in this environment. The Federal Deposit Insurance Corp. said last week that delinquent home-equity lines of credit — those late by 90 days or more — jumped 16.6% in the second quarter.

Pava Leyrer, a mortgage broker in Grandville, Mich., says she's been able to find home-equity lines of credit for clients with good credit histories who can show they have sufficient income to make payments.

Lending standards "have tightened somewhat to where they should have been in the first place," she says.

A home-equity line of credit is a revolving credit line, based on the equity in your home, that usually carries a variable rate. A home-equity loan typically provides a lump sum that you repay over a specified period at a fixed rate.

Interest rates on home-equity loans and credit lines have risen in recent years, but they're still lower than most credit card rates (see box). In addition, unlike interest you pay on a credit card, interest on a home-equity loan or line of credit is usually tax-deductible.

Whether you're shopping for a home-equity line of credit or a home-equity loan, here's what to expect:

•Higher credit standards. When home values were rising and lenders were fighting for business, homeowners could get loans, even if their finances were a little shaky. Now, "People with lower credit scores are definitely going to have a harder time finding financing than they had in the past," says Kyle Kilpatrick, executive vice president for LendingTree, a website that helps consumers shop for loans.

Though credit standards vary, borrowers with credit scores of 700 or higher will find the best deals on home-equity loans and lines of credit, Kilpatrick says.

•A required appraisal. Back in the heyday of home-equity loans and lines of credit, some lenders didn't require borrowers to get a traditional home appraisal. Instead, they used a computerized estimate, known as an "automated valuation model," or AVM, which estimated the value of the home. These computerized appraisals were generally faster and less expensive than hiring a licensed real estate appraiser.

Now, with home prices falling in many parts of the country, lenders are "being extra cautious and scrutinizing values" before they'll approve a second mortgage, Kilpatrick says.

If the amount you want to borrow is small relative to the amount of equity you have in your home, your lender might still allow an AVM, Kilpatrick says. A lender, for example, might still allow an AVM if your combined first and second mortgages would total less than 50% of the value of your home, he says. But in instances in which the combined loan-to-value ratio is higher, lenders are more likely to require a full appraisal.

•Higher costs. With fewer lenders offering home-equity loans and lines of credit, those that still do "have chosen to take less risky loans, and they're going to make a higher profit," Kilpatrick says. Those higher costs could appear in the form of higher fees or interest rates.

Some lenders have increased the "margin" on their lines of credit, Kilpatrick says. The credit lines typically carry a variable rate that's tied to a benchmark, usually the prime rate. The margin is the number of fixed percentage points you'll pay over — or occasionally under — the benchmark rate.

In recent years, many lenders have offered equity lines at the prime rate — now 8.25% — with zero margin. If a lender decided to charge a margin of 1 percentage point over the prime for a new line of credit, the rate would be 9.25%.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.