Home Equity Loans - second mortgage

Brooke Coin asked:




If you need to pay for a college tuition of your child, but don’t have the money yet, one good option would be to apply for home equity loans. In this type of loan, you can get the money that you need with the use of your home as collateral. You should remember that as your home is the one at stake, you should be very careful in paying the monthly payment and the interest that comes along with it. You will have to be very responsible with this if you want to get more benefits from this type of loan. You would not want to get a loan, add interest payables and lose your home if you don’t pay for it.

There are many ways that home equity loans can help an individual. You simply have to make yourself ready before applying for it. You can borrow a big amount of money to pay for college tuition, home renovation and other onetime large expenses. You can spend the money in any way that you want however you should make sure that you pay for the loan, and the interest. Only with this can you make sure that you have experienced the benefits that home equity loans can offer an individual.

There is a risk if you are not able to pay for your loan. When you do this, you may think that you can always get another loan to pay for the previous one. Although this option is always open, you should remember that there are added interests for each loan that you apply for and even if home equity loans may have lower interest, it would still make your financial status worse if you are not able to pay for it on time. You may have many options to make your finances be more stable so check on those options and do your research before any action. Make sure that whatever you do is backed up with the right researches and you are sure that it would be the way for improvement and not for getting worse.

There are risks involved in home equity loans but there are many people that consider this type of loan. You may think that it is easy to borrow money. It may be easy, but paying for it may not be that trouble free especially if your finances are too unstable. Thus, always remember to assess your situation before applying for the loan. Also, understand all the terms and conditions that the loan has before signing any deal. This will protect you from any harm brought by unclear rules in home equity loans. Additionally, you should make sure that you have checked other options before settling in one. There may be other ways of getting money for your current needs. Check on other ways and compare the interest rates of different home equity loans companies. You will later on see that there are many ways of getting enough money without too much risking for finances. With proper preparation, you will lessen the risks and increase the chance of financial improvement.

Paul

Brandon Cornett asked:




Home equity loans remain one of the most popular financing tools among homeowners. It can give you quick access to cash by leveraging the equity (or ownership) you have in your home. It can be an effective way to finance a home renovation, education costs, or even a second home.

But these loans also get a lot of homeowners into trouble each year, and in the worst-case scenarios they can even result in foreclosure and loss of the home. On top of that, there are some common scams associated with equity loans and lines of credit. The Federal Trade Commission (FTC) is constantly tracking the latest scams and warning homeowners about them. Here’s a summary of some of the more common scenarios you should watch out for…

1. Equity Stripping

In this scenario, the lender will actually help you “pad” your stated income on the loan application form in order to qualify you for the loan. “Why would they do such a thing?” you might ask. Predatory lenders use this tactic because they don’t care about your actual ability to make the payments — they will simply foreclose on your house and benefit from the equity you’ve built up over the years.

If your income is outside of certain parameters, but the lender says “we can make that work,” you should already be on your guard. That’s red flag #1. If they try to persuade you that you can make payments that seem out of reach, you have another warning sign. You’re the only person who should be making decisions about your ability to pay back a loan!

2. The Helpful Contractor Scam

This scenario usually starts with a home improvement contractor (such as a roofer) who knocks on the door of homeowners to offer their services. Many of the homeowners will say, “Sorry, but that kind of project is not in our budget right now.” The contractor will counter this by saying he works with a lender who can help offset the cost. Long story short — the homeowner signs some papers that turn out to be a home equity loan.

This scam is not as common as it once was. But it still happens on a regular basis all across America, so it’s worth mentioning in our list. Unfortunately, as with many scams, the elderly are often the target with this approach.

The first thing you need to realize is that a reputable contractor will rarely practice door-to-door marketing. That’s the first red flag. Additionally, a contractor should never refer you to a third-party lender — it’s a conflict of interest. That’s the second red flag.

3. Loan “Stacking” or Flipping

I refer to this scam as “loan stacking,” because that’s what takes place. The more common term for it is “loan flipping.” Regardless of what you call it, the scenario goes like this. The lender will offer the homeowner a second equity loan after the homeowner has already received a first one (and made a few payments on it). Basically, the lender refinances the initial loan to grant the homeowner additional money.

In some cases, this will happen more than once. And with each new round of financing, the rates typically get higher and the fees larger. The borrower now has even more money to use for whatever prompted the first equity loan — but they also have a lot more debt spread out over a longer period of time. Homeowners who fall prey to this scam often get in over their heads with all the fees that stack up on them. It’s a good way to lose your home.

There Are Some Trustworthy Lenders

I don’t mean to scare you away from the equity loan as a source of financing. On the contrary, it can be a useful tool for a responsible borrower, and there are plenty of reputable lenders that will offer you fair terms and treatment. I’m simply trying to warn you about the common scams that go along with these types of loans.

My advice is to use a lender you’ve heard of before, a company who has been around for a long time and has a reputation at stake. Be a smart consumer when pursuing such a program. Do plenty of research and let common sense guide you.

Lisa

Jane Addams asked:




With so many people of America who are in debt it is easy to understand why the Government has programs to help individuals that are in need. People are charging everything from gas to groceries and it seems that the problem is not going to end soon. Most people don’t know that thousands upon thousands of home loan grants are given out each and every year, to people who are just like them. But hundreds of thousand of other people go without a grant, not knowing that they may be able to qualify for one - and better yet, get the money that they need to do what they’ve always wanted with their home.

If you want to find out, you would qualify for home loan grants, you need to learn what they are and then find out what grants are available on the internet. In this article, you will find this information out to much help.

1. What Kinds Of Grants Are There?

The problem in today’s real estate market is that most people have no idea of what all is available or where to start in looking for it. However, when it comes to home loan grants, there are many available and once you know where to look, you will find the process of securing one quick and easy. If you need your home fixed, you will be able to find a home loan for that. As well as fixing up your home for looks and functionality. If you want a home loan, and need a down payment (This is one of the most common grants), but don’t have the money to save and spend on one, there is a grant for that. It’s actually easy to qualify for, and can give you thousands to put towards the home of your dreams.

2. Qualifications for Home Loan Grants!

The number one question have about home loan grants has to do with qualification. Remember that every grant is slightly different. There are even some grants that have some money, but not enough to help everyone out who applied. Even so, the basic concept of the grants is identical. There are a few grants out there that can give you up to $3000 dollars to help pay off back mortgage payments so that you won’t default on your loan and go into foreclosure.

- There are home loan grants for people that are disabled as well as veterans and those with a very low income level. You can check with the loan but these are all reasons that you may qualify.

- To qualify for home loan grants, you would need an income deemed to be at poverty level, which is not difficult in today’s recession.

- Grants are many times given to those with more personal debt problems, so apply even if you are having issues with money.

Jennifer

Jon Spears asked:




Every mortgage or refinance needs a target; something larger we’re trying to accomplish beyond just buying/refinancing a home or investment property. The best loan isn’t always the loan with the lowest rate, but the loan that helps you move forward financially.

Here are a few “Refinance Rules” you may want to consider.

These are rules aren’t strict-rather they are just like the sites on a rifle…they help everyone get a focus.

Because a mortgage should not be an end in and of itself, but a means to a bigger end.

Top Refinance Rules…

#1) Eliminating Consumer Debt: (Non-tax deductible)

#2) Have a Savings Cushion: Ideally 3-6 months in a liquid interest-bearing account.

After you close on a home loan, you’ll need a savings cushion. They focus so much on the mortgage rate, that they’ll empty all their savings to buy a home. Not a good idea! Tell me, does it matter if you get the lowest rates in Texas if you don’t have $500 left to your name after closing?

This is one reason why people should consider 95% loans. There’s a myth out there that most people with good credit put 20% down–but most the 80-90-95% home loan clients are PhDs, teachers, physicians, engineers, Aggies, OU Sooners, who could easily put 5-10% down. They choose to keep mortgage down payments to a minimum so they can put more money elsewhere, like money markets, buying investment homes, etc.

Refinance Rule #3) Pay of home before 30 years and save a ton in interest…..you shouldn’t pay for your house 3 times.

Go with the loan that moves you forward financially. If this is a 15 year refinance-great. But if you have debt and you’re paying lots of money out each month-your best bet is going with a home equity loan. The fewer bills you have the better.

Mortgage rates go up and go down…so chasing a magical rate is kinda stressful. And waiting for the market to come your way takes you out of control of your finances. I mean, if rates are 7% and you’re waiting on rates in the 4% range, you may be waiting a few years.

Have a strategy when going into the home loan or refinance- and “use” the mortgage to execute your game plan. Mortgages are just tools. And choosing the right tool is very important.

Ask yourself: “Is there a better way to approach a home loan or refinance than just trying to get some “magical low rate.” Naturally, rate is important, closing costs are too, but let’s try to blend two objectives. The more things you can accomplish with your refinance the better you will be and the better ROI you get from your closing costs.

For most people, they only aim at the mortgage rate. So what do mortgage companies do…they give low rates to these people. But With PMI…

PMI: Consider this, if your rate is 6.00% and the house payment is $1000. But your PMI is $200 month do you still think your rate is 6% if you’re paying $1200/month? Why don’t more people avoid PMI-it’s almost always a waste of money. You guessed it. Home loans that are 80/20 or 80/10 or 80/15s have higher rates because these are riskier than single loans.

And did you know mortgage people make more money on single loans vs. 80/20s or 80/15/5 loans?

Or take 95% home loans…these rates are higher than 20% down. But sometimes people want to keep their money vs putting it towards a home. Maybe they are self-employed and can get a greater return on this money elsewhere or maybe they can take the 5% down and eliminate all their consumer debt. Each person is different and has different goals and incomes.

So how do we actually blend these goals of low rates with financial planning? What do the “Refinance rules” look like in real life.

Someone calls and says “I want to lower my rate. I want to lower monthly bills.” Okay, great. That’s pretty general. Sorta like most high school boys want a nice car and a pretty girlfriend. Who doesn’t want this?

But what if we took at bigger approach to things and blended your goals for a refinance rule and added “eliminate consumer debt” to the equation. What loan would we choose if the objective was to reduce your family’s overall monthly expenses-not just the mortgage?

Just focusing on the mortgage is fine-who doesn’t want a lower home payment. But when we look at the mortgage in context of the overall family expenses we are really doing is improving your overall financial plan. This is what a financial planner truly needs to do. And all financial planning begins on the mortgage level. Because when you are out of debt you have more money to save, to invest, to build towards retirement.

And it all this begins on the mortgage level.

What’s your current refinance goal? Maybe your situation might be “Hey Mr. Mortgage guy, what loan do you suggest that will help me retire at age 55.”

Let’s talk about Home Equity Loans: We recently helped a client get out of debt with a home equity loan. They’ll save over $900/month. That’s $10,800 a year they have in their checking accounts. Not theoretical money. Not the What Would Dave Ramsey Do (WWDR) approach of “cancel your cable and take the difference and put it into a municipal bond so you can make 1.3% over 10 years” But real money.

Financial planning truly begins on the mortgage level.

Home Equity Loans: If you are going to refinance, at least look at something larger than the mortgage rate. For example, let’s say you’re current mortgage is 7% and rates are at 5.75%. You’d really like to refinance and lower your bills. Let’s say, if you took advantage of the 5.75% you’d save $100/month. Hey-that’s progress!

But what if you took some equity out of your home and paid most/all of your non-tax deductible debt off in the process? This probably would save you $500-$700 month. Then you could take some of the savings and apply it to your principal and pay a 30 year mortgage off in 15-20 years. That is a very important step-and here is where I agree with Dave Ramsey-you must have a budget because without this you’ll get back into debt.

Refinancing to get a low rate is good. The second approach moves you to an entirely different financial situation.

I mean, you’re going to have closing costs anyway. Why not go with a home loan that will move you forward financially vs. one that will just save you $100.

Some people think home equity loans are not good. Gurus like Dave Ramsey don’t encourage them. But if the numbers make sense-who’s to argue? Is Dave Ramsey going to pay your bills for you?

Dave teaches some great time-tested fundamental principles. Most of which I agree with. Budgeting, saving, low debt…but the more I listen to his show the more I see his main goal is this: ” Get to zero.”

“Don’t owe anyone anything”…which is good. He even throws some Bible verses around. Who could disagree with a simplistic message of getting to zero?

I don’t think you win the financial game by getting to zero. I believe you get there when you have money. When you have assets. And anyone who takes a black and white approach to anything, I tend to disagree with. Few things in life are 100%-and money is no different. If you called Dave’s show and said “Hey I make good money but I my retirement is iffy at best. I only have 30K in retirement and I’m 50 years old.” He’s likely to suggest you need to budget more, maybe cut out some vacations and buy another book of his.

If you called, me and you’d didn’t have any goals of your own-I’d probably suggest the things that Dave suggest- but I’d encourage you to buy investment properties or some other growth vehicle. If your IRA is growing at 1-2% and we find some properties that are growing at 3-5-7% I’d might even encourage you to put more of your savings towards a higher yield vehicle like established real estate. No specs stuff. Then, with the right planning and discipline, you could retire with several properties that have equity.

Then, with these assets you could sell them or keep them and enjoy passive income during your retirement years. Whichever approach you take-you’ll need to get some points on the board because “getting to zero” is no long term game plan. Most people need to take the Dave Ramsey PLUS perspective…. Take the budgeting, savings, getting out of debt time-tested fundamentals–PLUS buying and keeping assets and starting businesses, even if you have to incur debt.

Because getting to zero should not be the goal and every mortgage should have a specific purpose to move you forward financially.

Susan

Eddie Lamb asked:




The home equity loan interest rate that is available when you are thinking about applying for a loan should be a serious consideration in whether or not you choose to get the loan. If however you have financial needs that force you to take out a loan, take the time to review the important factors that impact the rate before choosing a particular lender. A small change in percentage points on the loan can make a significant dollar difference.

Defining the Terms

The amount of home equity is the amount of cash you would receive if you sold the home at market value and paid off the existing mortgage. In practice, this is not usually what happens. Instead the home owner increases the amount of loan against the home based on the increased value of the home. Equity in the home can increase if the market value increases and if the principal portion of the mortgage has been reduced by regular payments.

Where are the Best Loans Found?

Home equity loans are more popular now than in the past, in part because home owners may be looking for a way to pull cash value out of the home to meet obligations. However, the downturn in the housing market may make the home market value lower which means that there is not as much equity or collateral in the home. This makes less money available as collateral for a second mortgage.

How is the Interest Rate Calculated?

The interest rate for your second mortgage is affected by several different factors. If your credit score is high, the interest rate is likely to be somewhat lower than if you have a poor credit score. The amount of the loan you are seeking will affect the interest rate. Your rate may be higher if your loan-to-value ratio is high.

Types of Interest Rates

Interest rates on a home equity loan are usually either fixed or variable. Variable rates tend to be somewhat lower than fixed rates at the beginning, because they offer more protection to the lender. If interest rates in general increase, the rate charged on the individual loan can be adjusted upward. If interest rates in the economy are low, a fixed rate is advantageous for the borrower, since the cost of the monthly payment won’t increase over the repayment period.

Why Do Borrowers Choose a Home equity loan?

The primary reason to get a home equity loan is to take care of large financial obligations such as home improvement, schooling costs or medical bills. Since the loan is secured by collateral in the home, interest rates are usually much lower than increasing your credit card debt. It is for this reason a home equity loan is sometimes used to pay off high-interest credit cards.

Repayment Period of the Loan

In general, borrowers try to spread loan repayment out over a long period, so the monthly payment costs will be less. This practice results in a much larger cost for the interest portion of the loan, since the interest will be calculated on the longer period. Sometimes a lender will reduce the interest rate if the loan is taken for a shorter term.

No one wants to have an unbearable burden of debt, especially in shaky economic times, but sometimes an equity loan is the best option to manage large financial obligations. Before signing on the bottom line make certain that you have the best home equity loan interest rate available.

Claude

Susan Willis asked:




Having an even 3-point better interest rate on your home equity loan can save you over $1,000 in annual debt payments (on a loan of $50,000). Here are 4 tips for getting the best-possible home equity loan rates.

Tip #1: Pull your credit report: Even though your loan will be lent against the equity in your home as collateral, the rate for which you are eligible is still based largely upon your credit score. If you have not pulled your credit score in months or years, go ahead and do so now. You can get a free copy of your report at the Federal Trade Commission-authorized Web site.

Tip #2: Polish your credit score: If you have poor or fair credit, improving your credit score just 50 points or so can save you $1,000 or more in annual home equity loan payments. While an applicant with good credit might have a rate of 1/2 point below prime, someone with fair or poor credit might pay 1 to 5 points over the prime rate. Bonus: borrowers with better credit can often avoid application or appraisal fees as well, which can add up to significant savings.

Tip #3: Consider a home equity line of credit as an alternative: Before you apply for a home equity loan, consider a home equity line of credit as well. This is a great option if you are not sure exactly how much you will be borrowing over the next couple of years. The potential risk factor is that the rate is not fixed and as it is usually tied to the prime rate.

Tip #4: Compare rates: Once your credit score is in tip-top shape and you have decided that a home equity loan is your best option for securing cash, I suggest starting with your current mortgage lender to find out their best rate. Then, use that as a point of comparison and go online to shop for rates. There are a number Web sites that allow you to compare rates. Before selecting a loan on a given site, be sure to read the fine print about associated costs and fees.

For homeowners, a home equity loan can be a great way to secure cash. To get the best rate, be sure to check and then improve your credit score. Once you have decided that the timing is right to apply for a loan, shop for rates on any credible Web site that will allow you to compare among multiple lenders. And, be sure to read the fine print before signing on the dotted line.

Jessie