Home Equity Loans – second mortgage

Sonal Kaur asked:




A home is like the most treasured possession of a homeowner. It is the most comfortable, secured and sheltered place anyone can think of. At the same time it can be an overt statement to your wealth, social status and prosperity. As a matter of fact, the financial worth of the home is useful in providing loans or fulfilling refinancing needs. In a home equity loan (sometimes abbreviated as HEL), borrower uses the equity in their home as collateral. This is the reason why home loans are secured loans.

It is also known as second mortgage as they are secured against the value of the property. Lenders are not averse and are open-minded in giving money as they are assured of getting their money back.

It is different from home loan as it is taken for various requirements of the borrowers or the homeowners. They are as follows:-

1. Remodeling or renovation of the house.
2. Pay for college education
3. Refinancing the purchase of second home.
4. Debt consolidation
5. Home improvement

A home equity loan can be repaid over a fixed period of time at a fixed interest rate. This loan has a low interest rate. They are generally of two kinds:- home equity credits and Line Of Credit.

For people who have bad credit score, a home equity loan is easier for them to qualify for. the borrowers must be well aware of the terms and conditions and stay informed to avoid any unlawful deal.

Alvin

Roper Comptois asked:




Countrywide home equity loans are a good option for house owners who are in need of extra finance. Extra finance could be for various reasons such as house renovation, education, medical, and travel and auto loan. Processing the loan is easy and the money is given within a short duration.

This loan is especially useful when a large amount of money is required for personal needs and it is the best and quickest option in times of emergency. The advantage of this loan is that the interest rates are much lower than the other loan options.

There are two types of countrywide home equity loans. In both the loans the borrower can borrow a sum of money for a stipulated time period as per the terms and conditions. They are eligible only if they use their home for the loan. Super Stream line home equity is for borrowers who already have an existing home loan. These borrowers are entitled only for a certain percentage and not total value of the home.

Certain obligations have to be fulfilled in order to avail this loan such as satisfying the eligibility, filling the application form and getting full consent to go ahead with the loan. The lenders with cross check all the data given and verify the complete background of the borrower. Submission of the application can be done online or at any branches of the institution. Once the approval is obtained the borrower will be given complete instructions about usage of the loan. Apart from this a set of papers and agreements mentioning all the rules conditions and terms has to be accepted and signed by the borrower.

The specialty of countrywide home equity loans is that it has some convenient features to offer. The borrower can withdraw his loan amount at any point within the period allowed and the money will be sent to his personal bank account. The borrower is also allowed to avail of the credit line as many times he wants as long as he keeps paying is loan. The borrower also has the option to pay up only the interest amount during the drawing term given to him. Another advantage of this is that there is no set rate as the interest rate is calculated on the balance outstanding. Finally an added advantage to the borrower is that the loan interest is nontaxable. But the main disadvantage of not paying back the loan could lead to losing the ownership of the house and losing your reputation.

Frederick

Nicholas W Partridge asked:




Home equity loans are a type of loan in which the borrower uses their own home’s equity as collateral. These loans are very useful for financing big expenses, such as education, medical bills or repairs to your home. It creates what is called a lien against the borrowers home, and therefore reduces the actual equity of the home.

Most home equity loans require a very good to excellent credit history and a reasonable loan-to-value ratio. In some areas, these loans are referred to as second mortgages.

Many people get confused between these loans and the home equity line of credit, the difference being that a line of credit can be drawn upon for funds at any time and often comes with an adjustable interest rate, whereas a house equity loan is a one time fixed lump-sum, usually with a fixed interest rate.

As for whether or not this type of loan is suitable for you really depends on your circumstances. If you have a lot of equity built up in your home and you’d like to release some of it, then using your equity is probably a good option. Just be aware that banks view these loans as slightly more risky than other types of loans, and will therefore charge a higher interest rate. It’s generally advised to use the funds for major necessities only, as opposed to things like holidays or boats.

Conclusion

Home Equity Loans are great for those of us who have nearly paid off their homes and are looking for quick funds to renovate the home, pay off some medical bills or other larger expenses.

Antonio

Arturo Ronzon asked:




There are many issues involved with the application for a loan and also the approval of loans, there are also different kinds of loans available. The home equity loan is one of the different kinds of loans which involve the using of the home’s equity to get desired funds to meet the needs of the borrower. The lender gives out money to gain more money in return, and the best avenue for the lender to gain is through the interest rate attached to the loan, this is negotiable between the lender and borrower and an agreement is reached. The loan can be a fixed or variable interest home equity loan; this goes a long way to determine the other factors affecting the loan.

The variable or adjustable interest rate home equity loan is another type of home equity loan, this means that the interest rate is not stable and is subject to change at any time throughout the life of the loan. In this kind of situation the amount given is between the ranges of 80 – 100 percent of the equity of your home. This means that if the amount invested in your home is one hundred thousand dollars, the amount of the home equity loan will vary between eighty to a hundred thousand dollars. It should be noted here that the money is divided into different small installment, unlike the case of the fixed rate.

Most times, the adjustable interest rate home equity loan is more expensive to pay back than the fixed rate loans. This is because the interest rate is ever changing, most lenders utilize this opportunity to always hike the interest rates of loans offered; making it difficult for borrowers to actually determine what the monthly pay backs will be like, and with this you will end up paying more. In fact the total amount of payback cannot be determined at the beginning, making it impossible to plan.

Comparing the fixed interest with the variable/adjustable interest rate home equity loan, it will be discovered that the fixed rate is better since it enables one to budget, planning the loan repayment well since there is a knowledge of the total amount of payback, unlike the variable rates that makes it hard to plan because there is no definite total payback amount. But, with the variable rate loan, one can collect money at different times in small installments making one able to spend the money of the loan well, since the amount is used bit by bit to actualize the borrower’s desire.

Clifford

Peter Taylor asked:




For bad credit people who could not pay off previous loans in time and have other credit problems mentioned in their credit report, a loan may not come at easier terms. However, bad credit home equity loans are considered as easily approved for such borrowers for any purpose like home improvements, buying car, paying for wedding or holiday expenses or for debt consolidation.

The main reason for lenders approving bad credit home equity loans without worrying about bad credit is that the lenders take home as security of the loan. Not only that the loan amount is restricted to the amount of equity in home. This provides more security to the lender as in case of selling the home; lender is assured of recovering the loan amount. Equity in home is its current market value minus the amount yet to be paid off towards the loans taken for buying the home. The lenders will not approve bad credit home equity loan that is above equity in home. So this results in offsetting the factor of bad credit to larger extent. Assure the lender through a definite repayment plan that you are now in a good position of repaying the loan installments in timely manner. Tell the lender that one motive behind taking the loan is to improve your credit score.

Interest rate on bad credit home equity loans is a bit higher than offered to good credit people. But on comparing various lenders you can avail the loan at comparatively lower interest rate. The loan amount depends up on equity in home and so first find out your home’s current market value. The loan can be repaid in larger duration of 25 to 30 years or earlier as suits the borrower. pay off the loan installments so that your credit score improves and never fall in a debt trap again as the loan has given you an opportunity to start fresh in life.

Alvin

Max Bellamy asked:




Home equity is the amount of money borrowers have already paid, against the total value of their homes. It can easily be calculated by subtracting the amount of the mortgage balance from the current fair market value of the property. Any amount, by way of liens or second mortgages owed by homeowners, must be subtracted from the appraised value to determine home equity accurately. Home equity allows homeowners to use their own equity to acquire loans. They can get small loans for various purposes, such as for paying tuition fees or any other immediate need. They also offer certain tax benefits to the borrowers. Fast cash home equity loans allow the borrowers to avail of cash quickly, against the equity that they have build on their houses.

Fast home equity lenders usually verify the information provided by the applicants. After they find that everything is in order, they go ahead and deposit the loan amount into the bank account of the borrowers. The borrowers of fast cash home equity loans are usually given thirty days for repayment. However, in some cases, borrowers can provide the company with a post-dated check of the repayment amount. This repayment amount includes the interest charged and any service charge that the lending company might levy.

Fast home equity loans can be availed of through various lending companies that specialize in providing these loans. They can be contacted online or over the phone through the information provided by these companies in various advertisements. Usually, to get a fast cash home equity loan, applicants have to provide proof the equity of the home that is built up. This can be done by providing a current appraisal of the property and a document from the lenders, showing the amount that has already been paid against the loan.

Calvin

Tony Hodgison asked:




Before you can start choosing the right fixed rate home equity loan, it is important that you learn what these loans entail. Equity loans are secured loans that are taken out on primary residences or second homes to the degree of excess in fair market value over what is owed on the primary mortgage. The loans are unique types of mortgages that lenders offer to homeowners based on the equity amount in the home.

In other words, you can get money on your home’s equity from lenders up to a certain amount. The lender offers you a line of credit that you can use to make home improvements, take vacations, pay bills, or use any way you wish. The borrower pays money back to the lender, or banking institution, with interest.

Lenders offer the fixed rate home equity loan to homeowners and give them a checkbook. The checkbook can be used to write checks to pay off bills, or to use to make home improvements. Borrowers can use the money for anything they choose, but they are expected to repay the balance with interest on the amounts used.

In other words, lenders use homes as collateral in exchange for fixed rate home equity loan balances by which the borrower’s home used as collateral is secondary to the first mortgage. The home owner is offered a line of credit in exchange of home collateral.

Homeowners can take out a line of credit at 3.74% APR with good credit in amounts up to $75,000 through various programs currently being offered online. These allow homeowners to use their equity to lower their home energy costs, enjoy lower monthly installments, and save on taxes and interest while receiving a possible tax deduction. Other benefits may be offered as well.

You can use quote tools online to check out rates of current loans if you are thinking about taking out a home equity loan. Homeowners who owe less than $729,000 may qualify for the Home Affordable Programs. These programs assist homeowners with making their mortgage installments more affordable. The program works to help homeowners prevent such devastating financial situations as foreclosures.

Borrowers at risk may apply for the fixed rate loan if they have a first-lien loan or owner-occupied property that includes unpaid principal amounts up to $729,000. Before you venture into taking out the secondary loan, ensure that you learn all the details about equity lending and programs. You put your home at risk, yet you can get money to repay your debts. If you use the checkbook wisely, you can pay off higher interest credit cards and your primary home loan amount sooner.

Jose

Tab Pierce asked:




You might ask yourself: if a mortgage is for buying a house, why would some borrowers need a 125% home equity loan? A house costs, per definition, 100% of its value, so why the additional 25%? As a matter of fact, many borrowers need it, and even if many lenders don’t offer mortgage that high, it is still possible to find such deals.

125% home equity loans are intended principally for people who bought a house and need to renovate it. Or for borrowers who already have a first mortgage and want to consolidate some debt. Or for borrowers who have some unpredictable problem, like a medical bill or a broken car and just need more funds.

Lenders of 125% home equity loans use your home as collateral for a part of the loan and check thoroughly your income, since it is the guarantee of the other part of the payment. As in other form of loans, a good credit score is also essential.

One drawback of a 125% home equity loan is perhaps that it is almost impossible to get a prime rate for it. Due to this fact, most borrowers won’t use it as a first mortgage. Most borrowers will take an 80% to 90% mortgage as their first mortgage and, if needed, apply for a loan that reaches 125% of the appraised value of their home.

The terms of a 125% mortgage can be as long as of any other mortgage, with prime interest rate or not. It runs from a couple of years up to 30 years and even more in certain cases.

If you decided that you want a 125% mortgage than you normally need to show some proof of income, proof of home ownership, documents of your first mortgage and how much equity you already have in your home (that is value of home minus value of the mortgage). An appraisal is sometimes not necessary, if the appraisal for your first mortgage is less than 12 months old. Sometimes lenders use an algorithm to estimate the value of your home and lend based on this calculation. It is important to shop around not only for better interest rates, but also for better conditions.

The appeal of this kind of loans is its interest rates, which is normally lower than the interest rates of credit cards and consumer loans since they are secured against a home. Additionally, the interest that you have to pay on a home equity mortgage, no matter if it is for 80% or 125% of the value of the property, is mostly tax deductible (consult your tax advisor to know exactly if this applies to you).

If you are considering expanding your loan to consider a 125% home equity loan than take time to study and learn about it, going into this with full understanding will help you.

Stephanie

Jon Spears asked:




The state of Texas has some pretty interesting refinance rules. This is especially true when one wants to pull cash or equity out of their home.

There are two types of mortgage refinances. The first type is called a rate and term refinance. This is simply when someone wants to lower their rate or change the term of their original home loan. For example, someone with a 30 year mortgage at 7% may want to refinance to a 5.25%, 15 year mortgage.

In this instance they are not pulling cash out they are just changing the rate and/or the term of their original loan. During the “refinance boom” (2001-2004) many loan officer and mortgage brokers did dozens and dozens of rate and term refinances because mortgage rates dropped so low.

Most people refinance when their home loans when the market rate is much lower than their current mortgage rate. A good rule of thumb is when you can save about 1% it may make sense to refinance.

The second type of refinance is called a Texas Cash out Refinance. This is when someone wants to pull cash out of their home in addition to lowering or changing the rate or term.

Texas once outlawed the ability to pull cash out of one’s home but now allow this as long as the loan meets these criteria:

80% Texas Cash Out Rule: This rule states one that the loan can not exceed 80% of the home’s appraised value.

For example, if one’s home is worth $100,000 and the current mortgage owed is $50,000 than an equity loan can go up to $80,000 (80% of 100k). Thereby netting the borrower $30,000, less closing costs.

3% rule: This rule state that the total fees can not exceed 3% of the loan’s value. For example, if someone does a 100K equity loan the total fees can not exceed $3000. This means broker, title, survey, appraisal, underwriting, doc/prep (everything!) can’t exceed 3%. This law was intended to protect borrowers but it actually penalizes lower loan amounts making it difficult for those with small loans to take advantage of their equity.

This is a great example of regulation doing the opposite than what it was intended. So for those with loan amounts under 100K, it’s very difficult to do a home equity loan as state law also requires one to purchase a new title policy each time one refinance. Title policies usually run 1% of the loan amount.

However, it’s important to note that the 3% law does not apply for those doing an investment cash out home equity. So it’s actually easier to do a home equity loan on an investment property than on an owner occupied property in Texas!

12 Day rule: This is one of the more unique rules. Whenever you do a home equity loan your loan officer or mortgage broker will ask you to sign a 12 day form. This form states that the loan can’t close until 12 days after the date of the application. I guess the state of Texas wants you to have 12 full days to think about your loan!

3 day rule: Then, after we wait 12 days, we are required to wait 3 days until we fund. Not to mention one is required to look and sign the final HUD (settlement statement) 24 hours before closing.

So to make things simple: The loan can’t close for 12 days. Then, once the HUD is prepared by the title company the borrower(s) must review and sign the HUD 24 hours before we close. Then we can’t fund the loan for 3 full business days.

These rules are why it often takes 30 full days to fund a Texas Cash out loan.

Oh, and by the way. The final rule…one must wait 12 full months between home equity loans. So if you do a Texas cash out one year and the price of your home goes up significantly you must wait a year before refinancing.

Because Texas home equity loans have so many rules it is important your mortgage professional truly know the rules so everything goes smoothly with your refinance.

Susan

Eshwarya Patel asked:




The process of purchasing a home is quite daunting. If you are a first-time home buyer, you should try to avoid this kind of a scenario. You can speed up the process and facilitate its progress by doing your homework.

Your research will help you to distinguish between the first-time buyer loans and the home equity loans. You can choose the one that is best suited to your personal needs.
Following are some basic facts about the home equity loans:

o In case of a home equity loan, you are required to pledge your property as collateral in order to obtain financing.

o If you have a bad credit history and are willing to borrow a significant amount of money, you can opt for a home equity loan.

o These loans are safer than the first-time buyer loans. They do not involve any risk and therefore, lenders offering such loans tend to be liberal. This is because the borrower can neither disappear with the house nor hide it in case of default.

Following are the advantages of home equity loans:

o Interest rates are lower than the first-time buyer loans.

o They can be easily obtained in case the borrower has a bad credit history.

o Relatively large loans can be availed.

o These loans are tax deductible.

Following are the disadvantages of these loans:

o In case of non-payment, the home can be forfeited.

o There is great possibility that the borrowers might lose their most valuable asset-their home-by getting into illegitimate deals with scammers.

Jonathan