There is a myth that a mortgage simply drains income and traps homeowners into a long-term debt. But having a mortgage, and the home it was obviously used to buy, does not freeze your financial options. The commitment can lead to home equity loans to further enhance life and living.
Whether an applicant has a poor credit score or the perfect credit history, equity provides a highly valuable source of security when the need for large funds arrives. And because of the enthusiasm with which lenders greet equity as a form of collateral, the potential for securing loan approval on very large sums (say ,000 to 0,000) is actually extremely high.
However, criteria, conditions and limits also apply to these loans. Securing financing through home equity can have a positive impact but, as with all loans, must be repaid too. So, there are some issues that need to be understood before it is possible to make the most out of the opportunity.
What is Equity?
The first step to tapping into the full potential of a home equity loan is knowing what equity actually is. Equity is basically the share of the value of a property that is not accounted for by the mortgage, or any other loan.
For example, if a home is priced at 0,000, and a 10% down payment is made, then the required mortgage loan is 0,000. The equity on the home therefore, starts at ,000. This share of the home can then be used as collateral later on to help bad credit borrowers in securing loan approval.
And because the value of property is generally retained, financing through home equity is seen as the most reliable route to the funds that are needed.
Two Methods of Raising Equity
One of the biggest advantages of equity is that, unless there is a catastrophic occurrence in the property market, it continually grows. This means that regardless of the size of a home equity loan taken out, within a few years, more equity exists to help deal with any further problems.
There are two main ways in which equity grows. The most obvious is through the repayment of the mortgage loan. With each repayment made, a certain amount of the principal is bought back by the homeowner, thus increasing their equity on the home. So, the potential for securing loan approval returns every few years, once a large enough share of the mortgage is repaid.
The second way is through developments in the property market. For example, a home worth 0,000 in 2005, may be worth 0,000 today. So, the equity has increased over time, ensuring that financing through home equity is always possible.
Best Way to Find the Right Lender?
Of course, the terms and conditions that borrowers have to accept depend greatly on the lender that is chosen. While home equity loans are pretty straightforward to secure, there must be a proven ability to repay. Lenders generally charge low interest rates, so the repayments are always highly competitive.
But it is in the small print that the true value of a loan lies. Securing loan approval is half the battle, but if the right lender is found, the rest is made simple. Online lenders are easy to find, with comparison sites allowing fast analysis of the best offers available. It is a good idea to make a shortlist of four or five, then look more closely at what they have to offer.
Also, be sure to check their reputation with the Better Business Bureau before financing through home equity with them.
Showing posts with label Equity. Show all posts
Showing posts with label Equity. Show all posts
Tuesday, July 24, 2012
Thursday, June 28, 2012
With Home Prices Falling Should You Still Consider a Home Equity Loan
Until the recent great recession, a home equity loan was a reliable way for homeowners to access the cash potential of their home. A homeowner with good credit and available home equity could take out a second mortgage or a home equity line of credit, use the money to pay for a major household expense, and then pay back the money over time.
All loans involve risk, but the risk generally centered around the borrower's job prospects or personal health. With real estate values constantly rising, until 2008 few borrowers or lenders would have imagined that a significant risk to the home equity loan market would be declining home values. But home equity loans depend upon stable or rising home values. What do you do when the value of your home is falling? Should you consider a home equity loan in the current poor real estate market?
Declining Home Values
According to a recent survey by Reuters/University of Michigan, a record number of U.S. homeowners believe their homes have depreciated in value. For the month of February 2009, 64% of surveyed homeowners reported declines in the value of their homes. In contrast, the February 2008 survey reported that 35% of homeowners surveyed thought their homes had lost value. In February 2007 the figure was just three percent.
Did anyone's house increase in value? In February of 2009 only nine percent believed the value of their home had increased, which is the lowest recorded number in nearly two decades.
There has been a corresponding drop in the number of new mortgage loans including refinancing loans. According to the Mortgage Bankers Association weekly index of mortgage applications, during the last week of June 2009, U.S. mortgage applications dropped to a seven-month low. The number of home refinancing loans fell 30 percent.
A Case Study of a Home Equity Loan
What does this mean in reality? Let's say you bought your house in 2001 for 0,000. You put ,000 down and took out a 30-year, 7% fixed-rate mortgage for 0,000.
After paying your mortgage for eight years, in 2009 your loan balance is 2,000. If your home were appraised at its 2001 value of 0,000, the equity you now have in your home would be the appraised value minus the principal or loan balance, or ,000.
That's the part that you "own." It's what you can use as collateral for a home equity loaneither a second mortgage or a home equity line of credit. But how much could you borrow? The key is the loan-to-value ratio (LTV). Before the current recession, some homeowners could get a loan for 125% of their home's value. That is, if they owned their home outright and the home was appraised at 0,000, they could borrow up to 2,500 against it. But the industry has tightened up, and today the limit is 100%, and more often 80% of value. Some FHA loans offer cash up to 95%.
The LTV that your bank is willing to offer you will depend upon not only your home's value, but your credit rating and your income.
All loans involve risk, but the risk generally centered around the borrower's job prospects or personal health. With real estate values constantly rising, until 2008 few borrowers or lenders would have imagined that a significant risk to the home equity loan market would be declining home values. But home equity loans depend upon stable or rising home values. What do you do when the value of your home is falling? Should you consider a home equity loan in the current poor real estate market?
Declining Home Values
According to a recent survey by Reuters/University of Michigan, a record number of U.S. homeowners believe their homes have depreciated in value. For the month of February 2009, 64% of surveyed homeowners reported declines in the value of their homes. In contrast, the February 2008 survey reported that 35% of homeowners surveyed thought their homes had lost value. In February 2007 the figure was just three percent.
Did anyone's house increase in value? In February of 2009 only nine percent believed the value of their home had increased, which is the lowest recorded number in nearly two decades.
There has been a corresponding drop in the number of new mortgage loans including refinancing loans. According to the Mortgage Bankers Association weekly index of mortgage applications, during the last week of June 2009, U.S. mortgage applications dropped to a seven-month low. The number of home refinancing loans fell 30 percent.
A Case Study of a Home Equity Loan
What does this mean in reality? Let's say you bought your house in 2001 for 0,000. You put ,000 down and took out a 30-year, 7% fixed-rate mortgage for 0,000.
After paying your mortgage for eight years, in 2009 your loan balance is 2,000. If your home were appraised at its 2001 value of 0,000, the equity you now have in your home would be the appraised value minus the principal or loan balance, or ,000.
That's the part that you "own." It's what you can use as collateral for a home equity loaneither a second mortgage or a home equity line of credit. But how much could you borrow? The key is the loan-to-value ratio (LTV). Before the current recession, some homeowners could get a loan for 125% of their home's value. That is, if they owned their home outright and the home was appraised at 0,000, they could borrow up to 2,500 against it. But the industry has tightened up, and today the limit is 100%, and more often 80% of value. Some FHA loans offer cash up to 95%.
The LTV that your bank is willing to offer you will depend upon not only your home's value, but your credit rating and your income.
Saturday, June 9, 2012
125% Home Equity Loans Explained
The high competitive loan market has created 125% home equity loans to provide inexpensive funding to those who have already reached the 100% limit of their property value. With this exceeding amount you'll be able to obtain the money you need for any purpose with lower interest rates and more advantageous terms than with unsecured loans.
It is not easy however to understand how an inexistent amount of equity can secure a loan. Given that a property has a limited value, the amount of money borrowed that exceeds this amount might seem unsecured. However, it is actually secured with the same property only that there is a higher risk for that exceeding amount.
Property Value And Equity
A real estate property is an asset in whole, the market value is unique and with some exceptions, it cannot be divided. Thus, legally speaking what secures a certain amount is an ideal or virtual part of the asset. This implies that with home equity loans that exceed the market price of the asset, the risk for the lender of loosing money is greater.
When you obtain a 125% home equity loan, the mortgage loan is fully protected. The remaining equity guarantees the home equity loan. For a 0,000 property with a ,000 mortgage balance, you can obtain up to ,000 with 125% home equity loans, but the property can only guarantee up to ,000.
It's Just A Matter of Risk
The lender counts on the fact that properties tend to increase their value and that as soon as the mortgage and home equity loan's balances are reduced enough, the property will be able to guarantee the whole remaining balances and no exceeding amount will linger unprotected by the collateral. Thus, the lender is only risking a smaller amount for a short period of time.
Nevertheless, the greater risk exists and thus, the lender will compensate that fact with higher interest rates and shorter repayment programs so as to obtain higher monthly payments and reduce the debt faster. Also, in order to get approved for these loans, you'll need to meet harsher credit and income requirements.
How And Where To Get Them
Though these loans are becoming increasingly popular, you just can't find them anywhere and only specialized lenders are offering them widely. However, it is possible to find different lenders and compare what they have to offer by searching the internet for 125% home equity loans. Once you've entered your search in your favorite search engine, you'll be presented with many results.
Make sure to check everything thoroughly and contact the lenders informally prior to applying. Remember that given the higher risk that these loans represent you might be asked to meet harsher credit requirements than with regular home equity loans. And thus, you need to make sure you qualify before applying so as to avoid declines that might affect your credit negatively making it even more difficult to obtain financing in the near future. By requesting loan quotes you might be authorizing the lender to run credit checks, so be extra careful and ask the lender before applying.
It is not easy however to understand how an inexistent amount of equity can secure a loan. Given that a property has a limited value, the amount of money borrowed that exceeds this amount might seem unsecured. However, it is actually secured with the same property only that there is a higher risk for that exceeding amount.
Property Value And Equity
A real estate property is an asset in whole, the market value is unique and with some exceptions, it cannot be divided. Thus, legally speaking what secures a certain amount is an ideal or virtual part of the asset. This implies that with home equity loans that exceed the market price of the asset, the risk for the lender of loosing money is greater.
When you obtain a 125% home equity loan, the mortgage loan is fully protected. The remaining equity guarantees the home equity loan. For a 0,000 property with a ,000 mortgage balance, you can obtain up to ,000 with 125% home equity loans, but the property can only guarantee up to ,000.
It's Just A Matter of Risk
The lender counts on the fact that properties tend to increase their value and that as soon as the mortgage and home equity loan's balances are reduced enough, the property will be able to guarantee the whole remaining balances and no exceeding amount will linger unprotected by the collateral. Thus, the lender is only risking a smaller amount for a short period of time.
Nevertheless, the greater risk exists and thus, the lender will compensate that fact with higher interest rates and shorter repayment programs so as to obtain higher monthly payments and reduce the debt faster. Also, in order to get approved for these loans, you'll need to meet harsher credit and income requirements.
How And Where To Get Them
Though these loans are becoming increasingly popular, you just can't find them anywhere and only specialized lenders are offering them widely. However, it is possible to find different lenders and compare what they have to offer by searching the internet for 125% home equity loans. Once you've entered your search in your favorite search engine, you'll be presented with many results.
Make sure to check everything thoroughly and contact the lenders informally prior to applying. Remember that given the higher risk that these loans represent you might be asked to meet harsher credit requirements than with regular home equity loans. And thus, you need to make sure you qualify before applying so as to avoid declines that might affect your credit negatively making it even more difficult to obtain financing in the near future. By requesting loan quotes you might be authorizing the lender to run credit checks, so be extra careful and ask the lender before applying.
Friday, May 25, 2012
How Home Equity Works
Your home equity is the appraised value remaining in your house after you subtract the remaining balance you owe on your existing mortgage(s). It can be thought of as the part of the house you actually own instead of the bank: the part you've paid for so far.
It isn't difficult to build equity in your home, and chances are if you've owned your house for a while and have been making your regular mortgage payments, you probably have built a considerable amount of home equity already. Though the housing market rises and falls in cycles, the overall tendency is consistently upward. In other words, property values tend to rise over the long term.
How Can Home Equity Be Used?
Once you have equity in your home, you can start to use it to fund nearly anything you want or need. Having equity in your home puts you in a powerful position, as you can use it to qualify for credit and borrow money. Buy a new car, take that dream vacation, fund a college education, make renovations and improvements to your house. Whether to pay for an emergency or finance a dream, there are two primary ways to tap into the wellspring that is your home equity: a home equity loan or a line of credit.
What Are Interest Rates Like?
A good question to ask before borrowing money from any source is: how much is it going to cost in the long run? Because your house is being used as collateral on the loan or line of credit, the risk for the lender is considerably lower, and therefore interest rates on these loans are usually lower than the average interest rate on a credit card.
Home equity loans and lines of credit are, however, usually higher than the interest rate on the average fixed rate mortgage. And in general, home equity loans usually have lower interest rates than lines of credit.
What Are Some of the Other Benefits?
As if borrowing money weren't advantage enough, there are a bevy of other benefits as well, including:
* tax advantages (in many cases, interest paid on home equity loans and lines of credit are tax deductible)
* you can use equity to build more equity (if you tap into home equity to make improvements to your home, you raise your home's value, thereby building more equity)
* debt consolidation (you can use it to pay off higher priced loans or debt)
It isn't difficult to build equity in your home, and chances are if you've owned your house for a while and have been making your regular mortgage payments, you probably have built a considerable amount of home equity already. Though the housing market rises and falls in cycles, the overall tendency is consistently upward. In other words, property values tend to rise over the long term.
How Can Home Equity Be Used?
Once you have equity in your home, you can start to use it to fund nearly anything you want or need. Having equity in your home puts you in a powerful position, as you can use it to qualify for credit and borrow money. Buy a new car, take that dream vacation, fund a college education, make renovations and improvements to your house. Whether to pay for an emergency or finance a dream, there are two primary ways to tap into the wellspring that is your home equity: a home equity loan or a line of credit.
What Are Interest Rates Like?
A good question to ask before borrowing money from any source is: how much is it going to cost in the long run? Because your house is being used as collateral on the loan or line of credit, the risk for the lender is considerably lower, and therefore interest rates on these loans are usually lower than the average interest rate on a credit card.
Home equity loans and lines of credit are, however, usually higher than the interest rate on the average fixed rate mortgage. And in general, home equity loans usually have lower interest rates than lines of credit.
What Are Some of the Other Benefits?
As if borrowing money weren't advantage enough, there are a bevy of other benefits as well, including:
* tax advantages (in many cases, interest paid on home equity loans and lines of credit are tax deductible)
* you can use equity to build more equity (if you tap into home equity to make improvements to your home, you raise your home's value, thereby building more equity)
* debt consolidation (you can use it to pay off higher priced loans or debt)
Sunday, May 20, 2012
Home Equity Loans With Bad Credit: These Three Steps Will Get You Ready
The economy is in a less-than-perfect place right now, leading many people to have a hard time paying their bills and making ends meet. For homeowners with bad credit, home equity loans can provide a certain amount of relief that may be the difference between making through another month and falling into financial ruin.
Getting a home equity loan with bad credit is both easy and possible when looking in the right places. For a home owner, using this lending option to get cash in a pinch can be the best choice. However, there are important steps that you will need to follow before getting a home equity loan.
Step One: Talk to Your First Lender
The lender who first extended you the loan for your home should be your first stop when beginning this process. You need to talk to him about the money you still owe on this loan as well as the possibility refinancing instead of looking for a home equity loan, commonly called a second mortgage. Basically, the refinance may free up money for you and will prevent you from having to pay two loans each month instead of only one. The state of your credit that is how low it actually is will largely determine whether or not this is a possibility.
Step Two: Have a Credit Check
Most people with so-called bad credit may not understand what that means or where it comes from. Before you look for a home equity loan, understand what your credit score means and where it came from. This involves looking at two different pieces of information: your 3-digit credit score as well as your full credit report.
The credit score that you have is a number that falls between the numbers 300 and 800. Those with a score below 650 are then labeled as having bad credit, which can affect the terms of a home equity loan as well as your ability to secure one in the first place. Taking time to build up your credit score can really help in getting you a loan with good terms.
The other element that needs to be checked is your credit report. This is a detailed record of your assets, debts, and past repayment history. This will show you what is pulling your credit down and hopefully help you formulate a plan to make your bad credit improve. As an added bonus, doing this credit check will also allow you to look for potential errors that could be impacting your score.
Step Three: Research All Your Options
When looking for a bad credit home equity loan, borrowers need to make sure that the lenders they work with have a good reputation. Using the Better Business Bureau to research their history before making contact is a great start. This way, you know that the lender has been successful before and can hopefully extend you a good deal. Making sure that the lenders you contact run proven, legitimate business will have a direct positive effect on the loan that they can offer.
Finding the Home Equity Loan
Once you have all of these steps completed, getting a home equity loan with bad credit will be far easier. Make certain that you know who you are working with and what your options are to get the best deal possible.
Getting a home equity loan with bad credit is both easy and possible when looking in the right places. For a home owner, using this lending option to get cash in a pinch can be the best choice. However, there are important steps that you will need to follow before getting a home equity loan.
Step One: Talk to Your First Lender
The lender who first extended you the loan for your home should be your first stop when beginning this process. You need to talk to him about the money you still owe on this loan as well as the possibility refinancing instead of looking for a home equity loan, commonly called a second mortgage. Basically, the refinance may free up money for you and will prevent you from having to pay two loans each month instead of only one. The state of your credit that is how low it actually is will largely determine whether or not this is a possibility.
Step Two: Have a Credit Check
Most people with so-called bad credit may not understand what that means or where it comes from. Before you look for a home equity loan, understand what your credit score means and where it came from. This involves looking at two different pieces of information: your 3-digit credit score as well as your full credit report.
The credit score that you have is a number that falls between the numbers 300 and 800. Those with a score below 650 are then labeled as having bad credit, which can affect the terms of a home equity loan as well as your ability to secure one in the first place. Taking time to build up your credit score can really help in getting you a loan with good terms.
The other element that needs to be checked is your credit report. This is a detailed record of your assets, debts, and past repayment history. This will show you what is pulling your credit down and hopefully help you formulate a plan to make your bad credit improve. As an added bonus, doing this credit check will also allow you to look for potential errors that could be impacting your score.
Step Three: Research All Your Options
When looking for a bad credit home equity loan, borrowers need to make sure that the lenders they work with have a good reputation. Using the Better Business Bureau to research their history before making contact is a great start. This way, you know that the lender has been successful before and can hopefully extend you a good deal. Making sure that the lenders you contact run proven, legitimate business will have a direct positive effect on the loan that they can offer.
Finding the Home Equity Loan
Once you have all of these steps completed, getting a home equity loan with bad credit will be far easier. Make certain that you know who you are working with and what your options are to get the best deal possible.
Wednesday, May 9, 2012
Benefits Of Sweat Equity
We paid ,000 for a fixer-upper 3 years ago. We put ,000 into it. 3 months ago, it appraised for 1,000. Magic? No, Sweat Equity!
Financial Benefits:
Sweat equity isn't just for resale value. It also helps with refinancing. That ,000 I mentioned in the last paragraph was all on high-interest credit cards. When our renovations were complete, we refinanced our home and paid off all of our credit cards, reducing our monthly payments by 30%. That still leaves us with 50% equity in our house.
When you have a mortgage, you want at least 20% equity in your home. Not only could this make a difference in your interest rate, or even just qualifying for a loan, but having 20% equity should eliminate that nasty little PMI (Private Mortgage Insurance) that nibbles away at your principal payment each month, if you have a 90% or 100% mortgage. A few good sweat equity projects could be just what you need to refinance your house and get a better deal. Note: be sure your renovations are 100% finished before trying to re-finance. Appraisers don't want to see any work in progress.
If you have a good 1st mortgage, no second, and carry any other kind of debt, like car payments or credit card balances, sweat equity can help you qualify for a home equity line of credit. We found one with Bank of America (who holds our first mortgage) with no fees of any kind. It's completely free unless we use it. If we don't use it, we pay nothing, just like a credit card. Now, if we need a new roof or a new truck, it's already financed, at a low rate of interest, which is also tax deductible. If you like your new mortgage company, a good plan is to make 3 or 4 payments on time with your new loan, then apply for the line of credit. This way, they still have current credit and appraisal information to make the loan process go more smoothly. Ours was handled with just a couple of phone calls.
The psychic rewards of sweat equity:
Being able to show off a home improvement project that you did with your own two hands, is a great feeling. Not only will you have the satisfaction of accomplishing something, but the results will be unique. Your project will never turn out exactly the same someone else's.
Another benefit is having something custom, so the result enhances the original space, accommodates your furniture or collectors' items, and compliments your taste. One of our favorite projects was adding custom cabinets to a finished garage. Instead of trying to squeeze our treasures into pre-existing cubbyholes, we measured our stuff and built the cabinets to suit. Then we truly had a place for everything and everything in its place.
Finally, you'll get to enjoy the results and know that the project cost way less than if you had hired someone else to do the work. If you're on a budget, this could mean the difference between having what you want and doing without.
Financial Benefits:
Sweat equity isn't just for resale value. It also helps with refinancing. That ,000 I mentioned in the last paragraph was all on high-interest credit cards. When our renovations were complete, we refinanced our home and paid off all of our credit cards, reducing our monthly payments by 30%. That still leaves us with 50% equity in our house.
When you have a mortgage, you want at least 20% equity in your home. Not only could this make a difference in your interest rate, or even just qualifying for a loan, but having 20% equity should eliminate that nasty little PMI (Private Mortgage Insurance) that nibbles away at your principal payment each month, if you have a 90% or 100% mortgage. A few good sweat equity projects could be just what you need to refinance your house and get a better deal. Note: be sure your renovations are 100% finished before trying to re-finance. Appraisers don't want to see any work in progress.
If you have a good 1st mortgage, no second, and carry any other kind of debt, like car payments or credit card balances, sweat equity can help you qualify for a home equity line of credit. We found one with Bank of America (who holds our first mortgage) with no fees of any kind. It's completely free unless we use it. If we don't use it, we pay nothing, just like a credit card. Now, if we need a new roof or a new truck, it's already financed, at a low rate of interest, which is also tax deductible. If you like your new mortgage company, a good plan is to make 3 or 4 payments on time with your new loan, then apply for the line of credit. This way, they still have current credit and appraisal information to make the loan process go more smoothly. Ours was handled with just a couple of phone calls.
The psychic rewards of sweat equity:
Being able to show off a home improvement project that you did with your own two hands, is a great feeling. Not only will you have the satisfaction of accomplishing something, but the results will be unique. Your project will never turn out exactly the same someone else's.
Another benefit is having something custom, so the result enhances the original space, accommodates your furniture or collectors' items, and compliments your taste. One of our favorite projects was adding custom cabinets to a finished garage. Instead of trying to squeeze our treasures into pre-existing cubbyholes, we measured our stuff and built the cabinets to suit. Then we truly had a place for everything and everything in its place.
Finally, you'll get to enjoy the results and know that the project cost way less than if you had hired someone else to do the work. If you're on a budget, this could mean the difference between having what you want and doing without.
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