Home Equity Loans – second mortgage

Joseph Kenny asked:




Those of you who are among the ranks of the self-employed may have already learned that it is more difficult to get a loan – let alone a home equity loan. The good news, though, is that it is possible. Here is some information and tips about how you can get a home equity loan if you are self-employed.

The truth is, first, that you will find it more difficult to get a loan because you are self-employed. The primary thing that the lender will want to see is proof of a profitable income. Some lenders will make it more difficult than others when you try to prove it. You may be asked by one lender to provide statements for two years, and another one may ask for three years worth of proof. This means that you can probably rule out a no doc loan, too.

Another thing that you will need to watch for – concerning your own finances – is how much debt you already have. All lenders look at the debt-to-income ratio when considering giving a home equity loan, and usually require a maximum of 36%, which includes all mortgages and loans. It seems, though, that it may be a good idea to stay as far from this number as possible when you are self-employed.

You will also want to check over your credit report before you apply, to make sure that there are no inaccurate statements on it. Correcting these is not too difficult, once the problem has been resolved, but you will need to wait about two months before the corrections actually show up on your credit score. If you have less than two years of good, solid income, you will most likely have to pay a higher interest rate. A good credit score, though, will help this to stay reasonable.

Right now, self-employment is becoming more popular. Many lenders still do not have ways to provide for the needs of those of you who are in this category. New products are being developed, though, to meet the rising numbers of those who are leaving the commercial workplace. It may take a while, however, before there is some serious competition and a lessening of the stricter requirements.

Home equity loans can be obtained either as an adjustable rate mortgage, or as a fixed rate mortgage. You will have to calculate which one is more advantageous for your situation, and consider the possibility of rising interest rates now.

Something that you will need to especially consider is that a home equity loan adds another monthly payment to your bills. It also is secured by your home, which means it puts your home at risk if you should default on the loan – for any reason. Remember, also, to leave 20% of the value of your home’s equity untouched in order to not have to pay private mortgage insurance.

You may find that one or two lenders will definitely give you a higher interest rate. By looking around, however, and getting several quotes, you can find a lender who will give you the home equity loan you want – with reasonable rates. Compare them carefully, noting things like the interest rate, the fees, and repayment terms. Also watch out for any home equity loan that has a prepayment penalty in it – you don’t need it.

Bobby

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