Home Equity Loans – second mortgage

Milos Pesic asked:




If you are self employed you may be wondering if you can take out a home equity loan? The answer is that you can. In fact, it is a lot easier to do so today than in previous years since self employment is so common now. However, the process that you go through will be somewhat different than if you have an employer and W2 forms to submit as proof of income.

You might find that the regulations are a little tighter when applying for a home equity loan through a traditional lender such as a bank. For example, they might require that you have been self employed for 2 or even 3 years. They will want to see your tax returns for the years you have been self employed so they can get an overview of how stable your income is.

It is possible you can find it easier to work with a mortgage lender who specializes in home equity loans for the self employed. These types of lenders sometimes offer a ‘no proof of income’ loan which is very friendly towards those who are self employed. In this instance, you won’t have to worry about proving your income stability, but usually in order to compensate for that freedom, you will have to make other concessions. For example if it is a first mortgage, you will likely have to put up a large down payment, and for home equity loans, you will probably not be able to borrow 100% of your equity.

It is important as a self employed individual that you keep good records of your business. Those records will come in handy at times like when you are applying for a home equity loan. The more thoroughly you are documented, the less risky you seem to be and therefore more banks will be willing to take a chance on loaning you money. It could also mean that your loan will have a lower interest rate if you are not considered a high risk.

One thing is for certain, self employed home equity loans are not uncommon today. Self employment is at an all time high and financial institutions are aware of this fact and have special programs and regulations in place to serve this group of borrowers.

Just remember to follow the guidelines of responsible borrowing whether you are self employed or not. Don’t borrow more than you can comfortably afford to repay, shop around for the lowest rate and be sure to understand the terms before you sign. With a little work and attention to detail in your record keeping, you will likely find that in today’s world it is easy to qualify for a home equity loan if you are self employed.

Joy

Sean Bailey asked:




You may know that a home equity loan is the possible answer if you urgently need cash. But are you aware too that this type of loan carries with it the danger of losing your home? Since your home is used as collateral, non-repayment of the home equity loan could mean foreclosure of your home. It is therefore necessary to have a deeper understanding on how does a home equity loan work. As mentioned before, if you take this type of loan you will use your home as collateral. What then is home equity? Let’s say you have purchased a house several years ago for a specified amount. Over the years you have made changes…you may have renovated the house; you may have added a wing or two. These changes have increased the market value of the house. The value that goes with the house is the home equity. Now, if you take out a home equity loan, you are in effect “using” your own money. It becomes a loan because it entails interest rates to be charged, monthly repayments to be paid in a specified period of time.

Basically, this type of loan would have a fixed loan term, a fixed interest rate as well as a fixed monthly payment. However, there is another type of home equity loan that has variable interest rates, monthly payments and terms – the home equity line of credit. Unlike the former type of home loan where the loan proceed is given in one lump sum amount, home equity line of credit can be withdrawn by the borrower as the need arises. Monthly payment varies as it would depend on the amount of money withdrawn.

One advantage of taking a home equity loan is the relatively low interest rates. The borrower is afforded savings opportunities because payment for this loan is tax deductible and interest rates can be written off from the taxes he/she has to pay. These type of loans are taken for a variety of reasons. The proceeds may be used to pay off credit cards with high rates of interests; it can also be used to infuse capital on a business.

If you have a good credit history and you have all the necessary documents, your loan will be approved in no time. The cash you urgently need will be in your hands but there is an important consideration you need to remember, your home ownership is at stake here. Non-payment of the loan could mean foreclosure of your home. As you can see, it is not as straight forward as you would like to think it is. I hope the article has given you some insights on how does a home equity loan work.

Bradley

Alan Lim asked:


You may have heard the term home equity loan but are not really sure whether this type of loan will work for you. The first step is to understand the concept of home equity. Equity is the difference between the current appraised value of your home and the amount that is owed on the home. So, for example; if your home has recently appraised for $200,000 and you only owe $100,000 on it then you have $100,000 in equity in your home.

Many homeowners like the idea of taking out a home equity loan when they need to fund a home improvement or make some other type of purchase because they can often obtain the money they need at an interest rate that is lower than charging it to a credit card. In addition, there are also possible tax advantages as well.

When you take out a home equity loan you are taking out a second mortgage that gives you the ability to convert the equity in your home into cash. You can then spend that cash on any number of expenses including college education, medical expenses, debt consolidation, home improvements and much more.

You will generally need to decide whether you wish to take out a home equity loan or a home equity line of credit. These two terms are different. A home equity loan provides you with a one time lump sum of money that you will then pay off over a specified period of time at an interest rate that is fixed. It is much like your first mortgage.

A home equity line of credit, commonly referred to as HELOC, is more similar to a credit card. Instead of receiving the sum of money at one time, you will then have the ability to borrow up to a specified amount of money for the duration of the loan. That time period is set by the lender. As you pay off the principal amount of the loan, you can once again use the credit. In this regard, a HELOC is much like a credit card.

There are advantages to both a home equity loan as well as a HELOC. Many homeowners prefer the flexibility of a line of credit over a fixed rate equity loan. If they do not need all of the money up front, they are able to maintain control over how much money they draw down from the loan. The disadvantage to a line of credit is that it frequently features an interest rate that is variable. This means that the payment amounts will vary based on the prevailing interest rate.

In most cases, the draw period for a line of credit is between five and ten years while the repayment period ranges between ten and fifteen years. You will usually be able to access the funds of a line of credit with a credit card, check or electronic transfer that can be ordered by phone. Typically, an initial advance is required when the loan is set up.



MOHAMMAD

Joseph Kenny asked:


When you are looking for the cash you need to fix up your home, a home equity line of credit (HELOC) may be just the thing for you. This would be especially true if you have a project in mind but are not sure what it may cost. A HELOC could be just the solution you are looking for – because it offers you cash with different options than a traditional mortgage. Here are some of the benefits.

A home equity line of credit is to be considered as a second mortgage. After you fill out the paperwork, and the lender looks over your credit report and your ability to repay the loan, you will be given a credit limit. This means that an account is set up for you, and you will be given access to it either with a credit card or with checks. This way, you can draw out the money as you need it, and only as much as you need.

A home equity line of credit is usually based on a 25 or 30-year time frame. There is a draw period and a payment period. The draw period could be up to 11 years, and the rest of the time period is used for repayment.

You only pay interest on the amount that you draw out. This is an excellent way to save some money, because you still have access to more if you do need it. During the draw period, you will be paying interest – adjustable rate, on the amount of money you have taken out. The interest rate does not amortize the loan in any way – since you are only paying interest.

At the end of the draw period, however, the amortization period starts. Your payments will be calculated on how much you have withdrawn and your payments will be determined at that time. These payments will fully amortize the loan within the time remaining – most of the time. Some lenders do not calculate the payments to fully amortize the loan. Obviously, you will need to watch for this before you sign the agreement.

Home equity lines of credit can come with a number of repayment options. These range from balloon payments at the end of the draw period, to simply monthly payments for the rest of the term. Other options that may be included is the possibility of renewability. Some lenders give this option for those who want an ongoing line of credit.

Before you sign up for a home equity line of credit, though, be sure to compare a number of quotes first. A home equity line of credit may have monthly fees, annual fees, and more, so be sure you know about them all first. By comparing several plans, you can find the one that will be the least expensive, have the lowest rate of interest, and will be the best for you.



MELVIN

Joseph Kenny asked:


When it comes time to get the money you need to renovate your home, you have some choices to make concerning the financing of it. Both ways, either refinancing your first mortgage, or a home equity loan, will give you access to your equity. After that, though, a number of differences will clearly stand out. Here is what you need to know about these differences so you can intelligently choose the best one for your needs.

Features Of Refinancing Your First Mortgage

By getting a cash out mortgage, you can replace your first mortgage and obtain your equity. This means that you will have to pay the fees again that you paid when you bought the house in the first place. However, if you wait until the interest rates are down, you can get a better deal than you had before. The amount that you can gain could easily offset the costs of refinancing and save you thousands of dollars over the life of the new mortgage.

The interest rate for a first mortgage is always lower than what you would get for a second mortgage – which makes this the ideal choice. You also will have only one payment each month, which you could even make lower than what you have now by extending the time length on the mortgage. If you already have more than one mortgage, then this is also a good way to consolidate them and get your equity at the same time, as well as reduce your monthly payment.

If you currently have an adjustable rate mortgage that is about to run out of the fixed rate portion, then this should be the way you would want to go. Not only will it give you level payments with a fixed interest rate, assuming you get a fixed rate mortgage, but also your equity for the upcoming renovation project you have in mind. This means you could take care of more than one problem at once.

Features Of A Home Equity Loan

A home equity loan is considered a second mortgage. This means it will give you an additional payment each month. If you can afford the extra payment, this may be the way you want to go. It will also have a higher rate of interest than a first mortgage, and usually has a time frame of up to 15 years for repayment.

You can take out your equity but need to leave enough in there that is equal to 20% of the value of the house. This is true with any kind of mortgage, since you may need to pay private mortgage insurance if you go over this amount.

A home equity loan is mostly fixed rate, but some may also be adjustable. Your loan payments are fully amortizing, and money used for fixing up your home is often tax deductible. This type of loan is seeing some new variations come out recently, so you will want to see what is out there before you choose.

The Choice Is Yours

Obviously, only one of these choices will best meet your needs. After you choose a course to take, you will then want to get a few quotes – whether you choose to refinance, or get a home equity loan. You will need to look them over carefully and consider all aspects in order to find the one that is best for you.



PARKER

Ray Tolley asked:


While cash-strapped homeowners sometimes struggle to make ends meet, our real estate has seemingly morphed into the local bank. We can tap into our home equity for everything from cars to vacations to college funds. Though tapping into your home’s value is one of the smartest ways to borrow money, there are still drawbacks.

Moving Forward with Caution

Drawing on your home’s equity is often suggested by financial advisers who show that the tax-free interest you pay on a home loan is much lower than what you’d pay on mounting credit card or consumer debt. However, it’s possible to overdo it.

While there’s no law that says you have to pay off your mortgage before your retirement, it’s not always pleasant being left with home equity debt once you’ve stopped working. On the other hand, if you retire with a healthy nest egg and lots of home equity, you’ll limit your major expenses and have cash to fall back on.

Timing is Critical

The best way to access home loan financing while still retaining your retirement savings is to time the loan appropriately. Basically, you want to tailor the loan’s end date to coincide with your expected retirement. You can shorten a loan’s length significantly simply by adding $100 or $200 to your monthly payments.

Extra payments can also mean major returns. For example, let’s say you take out a home equity loan with a 7 percent interest rate and you’re in the 27 percent income-tax bracket. After you figure in your mortgage-tax deduction, you’ll still bring in a 5.11 percent return just by making extra principal payments.

Consider the Advantages

On top of added returns and despite rising interest rates and retirement risks, home equity loans are still more advantageous than other forms of credit. They offer quick access to funds at a cost that’s at least 5 percent less than a traditional low-interest credit card. In addition, that interest is often tax-deductible.

A second consideration when deciding between an equity loan and a line of credit are your monthly payments. Typically, home equity loans offer a fixed rate of interest and a steady monthly payment that’s predictable. A home equity line of credit normally uses an adjustable interest rate that can go up and down with the changing market. So, if you prefer the stability of a steady rate, a home equity loan may be the better option for you.

Preparation Ahead of Time

Before you commit to a home equity loan, you ideally want to have owned your home long enough to build up equity, not be planning to move soon, have a stable employment situation and actually need the money that a home equity loan can give you. If you’re using the funds to pay off credit card debt, don’t let your consumer debt run back up during the ten or so years it will take you to pay back your equity loan.

Finally, make sure you can afford the monthly payments. Any borrowing, especially on a home, needs to be part of a total household plan and worked within your family’s budget.



FERNANDO

melinamenny asked:


 

Getting a Home Equity Loan



Making the decision to take out any kind of loan is worth thinking about, and knowing your options may help make it final. When you take out a home equity loan, you are really taking out a loan on the equity you have invested in your house. If your house is worth $150,000, and you have a mortgage balance of $70,000, then you have built up $80,000 worth of equity. Potentially you may be able to take out a loan on any amount under $80,000. Some lenders will only give a loan on a percentage of the value of the house, usually about 75 percent.

 

Finding a lender may be easy, but it is wise to shop around before you decide what lender to accept a loan from. You will want to make sure you know what the interest rate is, and any other terms the loan will have. Will the home equity loan be a revolving line of credit, or a lump sum? Do you want all you can get, or just a portion of what may be available to you? What will you use the loan for? Is it considered a risky investment? Will the loan be worth putting your house up as collateral?

 

Answering these and any other questions you may have before you actually take out a loan is important, and may help you decide how much of a loan you need, and what terms you want to try to find from a lender.

 

There are Many Uses For a Home Equity Loan



Looking at the possibilities of how you can use a home equity loan may make the reality of your needs, and desires, more attainable. Home equity loans can be used for a variety of things.

 

Many people have a hard time paying down high interest debt they have acquired. Using a home equity loan to consolidate credit card debt, car loans, and any other loans you may be paying on, can save you money that would have been paid on interest rates. It will also help you be more organized by making it easier to keep track of one loan payment rather than many payments each month.

 

Using a home equity loan to pay off medical bills is another possibility. If you have a lot of medical bills you owe or have been putting off treatment for a medical condition because of a lack of money, taking out a home equity loan can be a great help to get the bills paid, and get the treatment you need.

 

Another thing a home equity loan can be used for is to pay off student loans. Student loans are federal loans, and they usually carry a high interest rate. Using a home equity loan to pay them off may end up saving you quite a bit of money, and help keep your credit rating up.

 

You could use a home equity loan to make your home more energy efficient. Putting in new windows or a high efficiency furnace will help lower your utility bills. Needing to spend less on heating your home will give you more money to spend on other things. Making your home more energy efficient also raises the value of your home, so you may be able to sell at a higher price.

 

Another way to raise the value of your home with a home equity loan is to use it to update your home. Insulating it, putting on a new roof, improving the kitchen or bathroom, is an investment in your financial future. Updates increase not only the value of your house, but they also raise the amount of equity you have placed in your home.

 

Putting on an addition, paving your driveway, or installing a pool are some other ways you can use a home equity loan. These things add to the value of your home, and also make it more desirable to buyers when it’s time to sell your house.

 

You could even use your home equity loan to take a long awaited vacation. Using it for recreational purposes may not increase the value of your house, but it would give you some rest and relaxation. This would help remove some of the stress of working and dealing with life on a daily basis. Taking a vacation is an investment in yourself, and can refresh you to the point of helping you think clearly and reduce your stress.

 

Things you may not want to use a home equity loan for



Since taking out a home equity loan requires using your house as collateral, you will want to make sure you are using it for improving the quality of your life, and not taking a high risk with it. Most lenders have standards they follow, and are wary of lending money for things considered a high risk. This protects them from having the loan defaulted on, and it protects you, the borrower, from losing your home.

 

Investing in stocks, new companies, and many other types of investments, is considered high risk. Beginning a new business may be considered a high risk. Taking risks that may cost you your house should be considered at great length. If you want to begin a business, there are other types of loans that may be more beneficial for you. Using a home equity loan for such a venture may end up costing you more than you bargained for.

 

Looking for the best possible deal, and not taking the first loan offered to you, could make a big difference in your finances. Finding an interest rate that will be fair, and terms of the loan that will meet your needs, and help you do what you want and need to do with it, will make it easier to pay it back.

 

Remember, a home equity loan is like a second mortgage, and will mean making a second mortgage payment each month. One good thing about this type of loan is that usually the interest paid is tax deductible, unlike other types of loans you may be eligible for. If you want to read more about the various uses of a home equity loan, visit the FHA website.



COURTNEY

Albert Alexander asked:


Everyone wants to know the answer to the same question. So how much can I get? How much you can borrow is directly related to your equity which is simply estimated by subtracting the outstanding balance you owe on the home from the current market value. Equity simply refers to the cash value that has grown in your home while you have been making your monthly payments over time. Equity loans enable homeowners to borrow money against their home’s calculated value.

At the same time as home equity loans are a great approach to free up extra cash which is tied up in your home, borrowers must be fully aware that they are using their home as collateral. If a situation arises and their loan obligations aren’t met, they could lose their home. Historically, home equity loans were strictly used for home repairs that would increase the value of your home. Nonetheless, these loans have become a feasible selection for large, non-home improvement related purchases or even for consolidating outstanding debts into one monthly payment at an affordable interest rate.

These loans, secured by real estate, are generally considered safer by lenders. Because of this your interest rates are likely lower than credit card rates or consumer loans. In addition, regardless of the rate, the interest on debt secured by the mortgage or lien on your personal residence is commonly tax-deductible. Please consult your accountant for more detailed information.

Equity loans are great in that they use the collateral of your home to secure the loan, helping you to get a better rate out of the deal and make smaller payments than you would to a credit card or even on a personal loan. Home equity loans can be used for consolidating consumer debt or covering a large expense such as a wedding, college tuition, or home renovations to your existing home. Home equity loans are desirable to borrowers because they oftentimes have a lower interest rate, they are easier to qualify for even if you have bad credit and payments on a home equity loan may be tax deductible.

Even if most lenders feel comfortable with home equity lending, and may be more liberal because they view home equity loans as comparatively safe, it’s still a loan. Lenders consider many factors such as your credit history, ability to repay the loan, and your homes equity (noted above) when making a decision on how much money to lend. Home equity lending, often referred to as a second mortgage or borrowing against your existing home, can open up a lot of avenues as a funding source for a current homeowner.

Because they normally have a lower interest rate, are easier to qualify for (even with weak credit) and the interest may be tax deductible, home equity loans are a great alternative for individuals. Home equity loans are, when all’s said and done, fixed rate home loans that allow you to take advantage of the money you’ve already invested in your home to finance larger debts at a typically lower interest rate than most revolving credit choices.

Home equity loans are a great option if you are sure of your ability to pay them off. Like anything else however, buyer beware. Hidden fees and confusing rate calculations can make a bad situation get even worse. Less reputable lenders frequently target people in vulnerable circumstances with troubled credit by proposing what appears to be an easy way out.



SHELTON

Prerna Joneja asked:


Home equity loan can be a difficult concept for the people who have never dealt with home ownership earlier. So, we define equity as the financial value of a property or business beyond any amounts payable on mortgages, liens, claims, etc. In short, home equity is how many houses the person has earned.

Equity is basically the difference between the market value of a property and the claims held against it. It is the difference between the price for which a property could be sold and the total debts registered against it. For example, if your house is worth $150,000 and you owe $110,000 then your equity is $ 40,000. Then, you get home equity loan depending on the credit and many other factors for $40,000 that you have built up in equity.

There are two types of Home Equity Loan:

Standard Home Equity Loan

Home Equity Line of Credit

Standard Home Equity Loan is the loan that is assured by your home or is secured by the equity in a home. This type is a better option if you need a large amount of loan and for long term.

Standard home equity loan is also known as Second Mortgage or equity loan. Home equity loan can help people pay off their big interest rates, non tax-deductible customer’s debt or meet some other short term needs.

A standard home equity loan is a closed-end loan that can have a fixed term, a fixed rate, and fixed monthly payments. It can carry a variable finance charge rate that switches with a federal interest rate. The amount of the loan is usually made available in a lump sum.

Home Equity Line of Credit is a loan option if you need a smaller amount of loan and for short term. This loan type provides you an option of withdrawing money from an equity account when you need it. The home equity line of credit is an “on demand” source of funds that a borrower can access and pay back as needed.

This type of loan has fluctuating rate of interest. The borrower has to only pay the interest if he carries a balance because this line of credit are essentially a revolving line of credit, like a credit card but with a much lower rate because the line of credit is secured by your home. The borrower can tap the credit line simply by writing a check, and pay back the loan as quickly or as slowly as the borrower like, as long as he meets the minimum payment each month.

Benefits of Home Equity Loan are:

Home Equity loan can be the best option if you need to repair or reconstruct your home for debt consolidation or for medical or educational expenses.

It can be used to get rid of credit card debts.

It can be used to meet your educational loans.

It can be used for investment in other real estate.

It can be used to pay off your medical debt.

It can be used to refinance your other debt.

It can be used for home improvement.

It can be used for some major purchases and expenses.

It can be used for debt consolidation.

Home Equity Loan can be used for home improvement projects because home improvement can be costly and paying that cost might be difficult. Home equity loan provides good interest rates.

Studying in a college has become very expensive these days. Home equity loan can also be used for paying college expenses. This type of loan helps people who have financial problems so that they can afford the college expenses.

It does not matter what is your decision but whenever you take a home equity loan it should be taken from a trusted and well reputed lender. As a whole, home equity loan is a better option while taking loan because it is beneficial in all aspects.



KIM

Joseph Kenny asked:


Preparing your home for sale in the near future may mean that you need to fix the place up before you sell it. If you have some major work that needs to be done to it, you may want to consider getting a home equity loan to pay for it. Here are some reasons why a home equity loan is a good option to get the money you need to fix it up.

Lower Cost

A home equity loan allows you to tap into the equity in your home. It is also looked at as a second mortgage and will provide you the funds you need to complete your home’s preparation for sale. Getting a loan this way provides you with a lower interest rate than most other type of loans, or credit cards.

Get As Much As You Need

Before you set out to get your money, you will need to know how much you want to get. Even before you do that, though, it would be a good idea to find out if the project you have in mind will actually increase the value of your home. If you are looking to raise the value of your home, talk with a Realtor or contractor beforehand, because some projects simply will not raise the value very much.

A home equity loan provides you with a one-time amount, so you will need to know what it will cost beforehand. If you are not sure of the cost, perhaps a home equity line of credit may be the better way to go for you. This will give you a line of credit, and access to it so that you can draw out money, as you need it.

Fixed Interest Rate

A home equity loan will usually have a fixed interest rate. This allows you to know exactly what your payment will be from the start. Since you are planning on selling your home as soon as possible, you want to keep your payments as low as possible. You will want to keep in mind, though, that a second mortgage does mean an additional payment – at least until sold.

Keep Payments Low

With a home equity loan, you are able to get low payment terms that will not fully amortize the loan. This usually requires a balloon payment at the end of the loan in order to fully amortize it. Since you are only borrowing the money for a short term, though, this would enable you to pay the least amount until your house sells. Then you can make your payment in full.

Make sure, though, that there are not any early payoff penalties on your home equity loan. This will allow you to pay the least and get the most for the short term. You also want to get a few quotes for your home equity loan and look around for the best deal. Compare the various offers you receive and find out which one will work best for your situation.



GARRY