Home Equity Loans – second mortgage

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

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

Andrew Bicknell asked:


When it comes to getting a second mortgage there are a multitude of choices out there waiting for you to use. You can go to your local bank, visit a company that specializes in mortgages, or use the most straightforward and easiest method today, apply for an online home equity loan. The beauty of using the internet is you never have to leave you house.

There are plenty of internet loan sites to go around offering all manner of loans and interest rates. The nice thing about most of these online home equity loan sites is they are designed for a quick turn around. You will get an definitive answer to your application within a day or two of filling it out with the idea that your loan check will arrive or be direct deposited into your bank account in less then two weeks.

Here’s how the basic home equity loan process works; and remember you can get multiple quotes from different lenders to find the loan terms that work best for your situation.

1. You find several loan websites that you feel will give you the best deal on your loan. Fill out their online applications and hit the submit button.

2. You will receive a phone call from a representative of the various loan companies you applied to to verify the information on your application. They will also tell you what information they need from you to verify what you put on your application.

3. When the information on the application has been verified you will be asked to print it out and sign it. After that you either fax it or send it by mail to the loan company along with any other paper work they might require such as proof of income or last years tax returns.

4. After the loan company has processed you application and the other paper work the loan representative will call you once again to set up your closing where you will sign the loan papers.

5. After the closing the papers are returned to the loan company and if everything is in order they release the loan money to you, either as a direct deposit or check, in a matter of days.

One thing to watch out for are online home equity loan companies that promise to have the money to you the same day as you apply. There are certain processes that have to be followed when it comes to home equity loans and these usually take a few days.



IRVIN