Home Equity Loans – second mortgage

Mark P Knowles asked:




The home equity loan market has shrunk along with many Americans’ home equity, meaning that arranging a loan secured by the house value has become increasingly difficult and expensive. Here, I will explore the reasons behind this situation.

Falling home values

Home equity is the term used to describe the portion of the home that is actually owned by the homeowner. So, as an example, if some one owns a $200,000 home and has borrowed no money against it, they would have $200,000 of equity in the home. As another example, some one who owns a $200,000 home, yet has an outstanding mortgage on the property of $100,000 would have $100,000 in equity. Simple mathematics.

Now to a more realistic example – Some one has purchased a $200,000 house, using a $180,000 mortgage, and the home has since fallen in value by 25% to $150,000. They would now be considered to have “negative equity,” in that they owe more money on the house than it is worth. They have no equity in the house and will not be getting a “home equity loan.”

Home values in the USA have fallen to around 2003 levels, meaning any buyer who purchased a home using a mortgage in the last six years is almost certain to have no equity. In fact – at the time of writing this (August 2009), only 5% of American homeowners with a mortgage have positive equity in their home. The other 95% are underwater, and almost 14% have more than -25% equity. None of these people are going to be able to arrange a loan, because they hold no equity.

Increased lending criteria

As the banks have continued to suffer heavy losses, and the amount of foreclosures continues to increase, they are being forced to return to rational lending practices. The 100% home equity loan is a thing of the past, along with the so-called “liar loans,” and 125% Jumbo loans.

This they have increased their lending criteria to the point where they will only consider a home loan of 80% of the value of the home. Once the fact that home values have fallen drastically is taken into consideration, this means the home equity loan is a rare beast.

In summary, the home equity loan market is unlikely to pick up in the near future, for the simple fact that very few have any home equity to borrow against. This does not mean that it is impossible to arrange a home equity loan, but it is important to know the value of the home and actually have some equity. This is another issue currently being faced – with falling sales volumes, it is becoming increasingly difficult to accurately value any real estate, and therefore more difficult to accurately assess the level of equity. One thing is for certain; the banks will err on the side of caution when doing so. Homeowner loans are currently only available to borrowers with a “good” credit score and equity to borrow against.

Ruth

Lee Van asked:




The home equity loan was devised by the banks for a way for home owners to access cash to renovate their homes. They are in fact borrowing the equity of their homes and this loan is secured against their homes. There is however, no restriction on what the money can be spent on.

The bank will check the applicant’s credit record. If the borrower’s credit record is bad the lenders will impose a higher rate of interest on the loan to compensate themselves in case he or she did not pay off the loan in full. This loan is secured against the home so the risk is not very high for the lender to lose money in any event.

There is always something that has to be done on a home to keep up the current value. Homes have to be painted inside and outside, gardens need to be landscaped or a swimming pool built. All these projects cost money and they can be done with this loan.

What I find amazing is that a lot of people out there will actually feel it is worth the expense of the loan to use the money to go on a dream holiday. There is seldom enough money in the family budget for pleasure. The family might be dreaming of visiting a certain place and the only way to make the dream come true would be to take a loan to pay for it. But try to remember what you are paying in the long run for such a small and short pleasure.

Edward

Gertrude J Fellows asked:




Credit equity home loan refinance is a refinance loan that you can have by giving the lender equity in your property or sometimes in your business as well. Loan refinance works in a similar manner to the equity loan, where you will be entitled to get a loan to the value of the collateral that you provide.

Refinance works in a very simple manner. You could pickup one of these loans to repay or refinance any other loan Usually you would want to refinance another loan or mortgage that you have taken with a loan that has a lower rate of interest.

It might seem that these loans are given out with out to much worry and that they are simple to get, the answer to that is a big no. There are a number of considerations to take into account before lenders would consider, before accepting an application for a Loan.

One of these considerations is the percentage of equity that is available to the lender and if this percentage is not enough then it is good by refinancing.

Another consideration is the income and credit rating or credit history, now as you must know the more healthy your credit history the more chances you will have in your home loan refinancing.

There are two types of refinancing available one is with a fixed rate of interest and a variable rate of interest.
The application procedure for the loan refinance is obviously a bit lengthy, as you would have to submit quite a few papers.

However, today banks try and keep the procedure short and simple. You could also apply online for a refinancing loans.

Maria

eHow asked:

Home equity lines of credit have lowered in recent years because banks have loaned out more than some houses are worth. Understand why banks are lowering home equity lines of creditthrough tips and advice from an an experienced financial adviser in this free video. Expert: Patrick Munro Contact: www.northstarnavigator.com Bio: Patrick Munro is a registered financial consultant (RFC) with outstanding sales volume of progressive financial products and solutions to the senior and boomer marketplace. Filmmaker: Reel Media LLC

Joseph

Bloomberg asked:

April 12 (Bloomberg) — Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. may have to set aside an additional $30 billion to cover possible losses on home-equity loans, an amount almost equal to analysts estimates of profit at the three banks this year. Bloomberg’s Monica Bertran reports. (Source: Bloomberg)

Ramon

Timmy Deleu asked:




Equity rates is a very difficult subject to most people and because taking a home loan is a very big and often life changing decision, hopefully this article can help you get a better understanding about home equity rates.

Everyone who is thinking about applying for a home equity loan or a mortgage has to consider slight differences of rates in the states they are living in, because the rates vary in the different states. Equity rates are variable with the changes in the economy.

Equity rates are controlled by several aspects, banks have a small impact on the rates while the Federal Government observe the economy inflation statistics to find out if the equity rates need to go up or down. Rates are different in Washington compared to New York, for example in July 2008 the equity rates for a $75K home equity loan FICO where 7.70% for Washington while in New York the rates where 7.55%. These are also vary on the type of loan and of course the length of the home loan.

Don’t get scared off because equity rates vary so much from state to state, to more you learn about it the easier it will become. Like with any subject the beginning is always a little harder.

As you know now, your state is calculated into the rates on home equity loans. Thus, when requesting for an equity loan, it makes perfect sense that you know what the rates are in your current state to get ready to talk terms with the lenders. It really is of no importance if you are an investor when requesting for equity loans because the only thing that matters is finding the best deals. You have to know that almost all lenders are rivals of each other and almost all of them will listen to your negotiation when discussing home loans. You have to keep informed and up to date on current rates and loan offerings if you are to negotiate.

As a final note, when considering home equity loans, you have to stick to the advice offered to avoid any losses. By listening to the advice, you can be prepared for the future, and spare yourself of financial burden.

Think about what you just have been reading about equity rates and I’m sure you will do a great job next time you are negotiating for a home equity loan.

John