Home Equity Loans – second mortgage

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

Blake Fisher asked:




If you have bad credit or even just below-average credit then you probably have realized first-hand just how difficult it is to get pretty much any kind of loan. Lenders simply view people with bad credit scores as high-risk individuals, and there isn’t much you can do to change this perception. If you own a mobile home and you have built up some considerable equity in your property then you may be interested in a mobile home equity loan. A mobile home equity loan can give you a loan that can be secured by the equity you have built up in your mobile residence, and like other loans, whether you get approved or not will depend heavily on your credit.

The good news is that there are lenders that supply all kinds of loans for people with bad credit histories, and some of these lenders even specialize in providing niche-type loans such as mobile home equity loans. These types of lenders will listen to your explanation as to why your credit is so bad, and they will typically grant you a pass in terms of approval as long as you can meet the remainder of their requirements. When it comes to home equity loans, these types of lenders like to see that you have a good employment history, and this should translate into a demonstrable and consistent income that you can show the lender.

Once these sorts of lenders see that you have enough money leftover each month to make the payment on your mobile loan they will then make exceptions if you don’t have the best credit in the world. Lenders still don’t like to see bankruptcies and other sorts of delinquencies and late-payments on the credit report but if you can show that you can repay the loan each month they may be able to overlook these kinds of things as well. Some of these lenders will not be able to make a mobile loan if your mobile unit isn’t built on a solid foundation, so make sure this is in place before you start to go out and apply to a bunch of lenders. Work on your credit and the remainder of your application and you will eventually get that mobile home equity loan with no problem.

Manuel

Milos Pesic asked:




When a lender considers whether or not to approve your home equity loan application, he will compare the equity in your home against the loan amount you have requested. Usually, lenders are willing to offer home equity loans up to 80% of the equity amount, although it is not uncommon for some lenders to offer the full 100%. In fact, it is possible that a lender would even grant your loan request for an amount that is greater than your equity but would probably apply higher interest rates or shorter terms to compensate for the increased risk.

Lenders will offer a varying interest rate depending upon your credit score and other qualifiers but they still must comply with the rules set forth by Freddie Mac and Fannie Mae when it comes to risk factors. Since there is some leeway for individual lenders it is a good idea to carefully read and make sure you understand the stipulations, restrictions, clauses, rates, exclusions, and terms for the loan before you sign the dotted line. The rate and terms you are offered will depend upon your credit score, ability to repay the debt and your wages.

Before settling on any one loan, it is a good idea to shop around. Consider the amount you need to borrow. If it isn’t a large amount, you might be better off with a credit line and if it is a large amount, you might be better off with a total refinance of your mortgage so you can cash out your equity. Also, bear in mind that you should understand the different types of financing. For example, it is usually better to opt for a fixed rate instead of being seduced by low initial variable rates. A fixed rate means your loan payment will be the same every month until your loan is paid off. A variable rate means your loan payment could rise along with inflation until you are unable to afford your payment in 5 or 10 years.

When it comes to applying for a home equity loan, the most important factor the lender will consider is the amount of the loan request as compared to the amount of your equity. Next, the lender will consider your credit score and income. Therefore, if you think you will be taking out a home equity loan, it is a good idea to get your credit cleaned up before you apply. Also, if you intend to change jobs, it would be best to apply for your loan before switching employment. You want your income and finances to look as stable as possible so the lender won’t have an excuse to reject your home equity loan application.

Elsie

David M Siegel asked:




One of the biggest advantages that home equity loans offer is the deductibility of the interest rate. However, many debtors don’t fully recognize the limitations that are set on these deductions and how proper allocation of such loans can qualify them for the deductions. There are two types of mortgage loan interests. The first one is the interest from home acquisition debt which is used to buy, build, or substantially improve a house. The second one is the home equity debt which is not used to buy or build a home. The intent and actual use of the loan dictates how the loan is treated for income tax purpose.

Debtors can deduct interest from home acquisition debt that is up to $1,000,000. However, they can only deduct interest from home equity debt that is up to $100,000. Borrowing $120,000 for debt consolidation will not allow the debtor to deduct the interest from the extra $20,000, unless the $20,000 is used to substantially improve a house.

Another limitation on the deduction of the interest rate can be seen when the value of the house drops. The interest rate can only be deducted from home equity debt that is not exceeding the owner’s equity in the house. Therefore, if a debtor owns a house worth $300,000 and $250,000 is secured with a home acquisition debt and a debtor borrows additional $50,000 through home equity debt, the interest from the $250,000 and $50,000 would be deductible. But if the value of the house drops to $270,000 the interest on the $250,000 home acquisition debt would still be deductible, however only the interest from $20,000 (270,000-250,000) of the home equity debt would be deductible.

Debtors also have to consider whether they fall under the alternative minimum tax or the itemized tax regime. Only the itemized tax regime will allow debtor to deduct the home equity loan interest. Keeping this in mind, the tax factor may not apply to a debtor at all, and in this case it might make more sense to use other types of loans, instead of putting your house as collateral.

Gilbert

Carrie Reeder asked:




Home equity loans are regulated in California to limit fees and caps.
No matter where your financial company is based, they will have to
follow these regulations if you are living in California. By expanding your
search to national financing companies, you can find competitive rates
and terms that still follow California law.

Providing Full Home Equity Disclosure

Many of the basic ideas of the federal “Truth In Lending Act” are based
off of California financing law. By using lenders who follow California
financing laws, you can protect yourself from predatory lending.

For example, one such California principle is the idea of full
disclosure, listing out interest rate, fees, and terms before signing a loan
contract. In California, lenders must offer contract copies before
application and before using the credit.

It is a good idea to look over the fees and terms to be sure they are
fair and meet your needs. For example, if you find a prepayment penalty,
then you may want to negotiate a waiver or find a different lender.

Placing Caps on Home Equity Loan Fees and Terms

California laws also place caps on fees and terms, particularly with
sub prime loans. For example, interest cannot be charged on a loan until
one day after closing. There are also limits on late fees and early
payment.

Large financial companies have been prosecuted in California for
failing to meet regulations. So even with the biggest names, look over the
terms to be sure they are not overcharging you.

Shopping Outside of California for Best Home Equity Loan

Even with local laws, you can still search outside of California for
low rates. By expanding your search online, you can find competitive
rates and terms than still meet California law.

Start with a broker site that will link you to several lenders. By
providing your address, financial companies will be aware of the unique
laws related to your loan quote.

Be A Smart California Home Equity Loan Shopper

Your California address won’t protect you from unscrupulous lenders. Be
sure that you practice good credit habits by reading and understanding
all your loan terms. Also, compare rates and fees with other lenders to
be sure they are inline with the market.

Stephanie

eHow asked:

Home equity loans are loans that a person can get from a lender or bank against the value of their house. Understand how home equity loans are used to borrow against home valuethrough 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

Stacy

Martin Mathers asked:




Unlike traditional secured loans that require collateral to be put up in return for the money, a Home Equity Loan is a way of borrowing money based upon the value of your house. The key word here is ‘equity’, which refers to the difference between the amount you owe on a mortgage and the actual value of the property – so, if you had a £150,000 mortgage but the house was valued at £250,000, then you’d have £100,000 worth of equity to play with. By using a Home Equity Loan, you could potentially free up that money and use it for a variety of things, from home improvements (which could increase the value of your home further) or a car to funding a child’s education, consolidating debts or even buying a second home. Thanks to the fact that you’re basically borrowing money on top of whatever mortgage you might already have, it’s no surprise that many people refer to Home Equity Loans as ‘second mortgages’.

Of course, the big catch with Home Equity Loans is that there needs to be equity available in your home before you can borrow against it. With home prices considerably lower than they were as little as five years ago, this might be difficult for some home owners and impossible for others, since a lot of people today are discovering that their homes are actually worth less than what they paid for them! If you’re considering a Home Equity Loan then, it’s important to check that there’s actually something you can borrow against before making an application, as being declined can be both embarrassing to yourself and potentially damaging to your credit rating.

You might also struggle to get a Home Equity Loan if you’re suffering from bad credit, since lenders might see you as a risk to lend the additional money to. In these circumstances, it may be better for you to consider a Bad Credit Loan or some other form of borrowing that you can secure on your home, without the need to extract equity from it.

Regardless of your circumstances though, there are two very crucial things that have to be considered before taking out a Home Equity Loan. Firstly, do you really need it? There are many other different types of loan product out there right now that could do the job just as well without putting the equity in your home at risk, so it might be worth considering those first instead. Just as important is the lender you’re going with – instead of accepting the first offer you get, check out a number of firms and, where possible, play them off of one another to ensure you’re going to get the best deal available. Every lender is different and you might discover some offers that wouldn’t otherwise have been available if you look hard enough; even if you’re in something of a rush to free up the cash, it’s always wise to look before you leap!

In Summary

A home equity loan…

Is often referred to as a second mortgage by lenders and banks Allows you to borrow the difference between your home’s value and your mortgage amount Requires there to be extra equity in your property before you can get one Might be hard to get if you have a bad credit rating or other financial difficulties Should always be considered thoroughly before you sign on the dotted line

Copyright: Individual Finance, 2010

Dale

motormank asked:


My husband and I need to lower our monthly payments. We have no debt except a line of credit for $60,000 with the payment of $410 and two car loans both adding up to about $25,000 and the combined payment of $1050/mo. So, we are spending about $1400/month for these 3 things. If we got a loan for $110,000 and payed all these off, our payment at 6.6% would be around $700/month. Of course I would always pay more than that per month which would go to principle. Why isn’t this a good thing to do? I realize that getting a new car would add to our payments once again. So, that would not be smart. Other than that, is this a smart thing to do? It seems like it is, but then why don’t more people do this?

John

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

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