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Home equity loan: Cash in on your home equity

Posted on: 26th Mar, 2004 05:19 am
if you wish to utilize your home equity and use it to your advantage, you may consider taking a home equity loan (hel). whether you'd like to consolidate debts, pay for home repairs, make a big purchase or finance your child's education, an equity loan may be the right choice for you.



what is a home equity loan?

equity loan is a fixed rate second mortgage offered against your home equity which is the collateral here. since payments are almost fixed, therefore, you can plan your budget accordingly. however, you may also find equity loans with variable rates and payments.

how do you qualify for a hel?

there are 3 factors that lenders look for in a hel application. the factors given below are:
  • credit history:
  • you need to have a decent credit record along with a credit score of 680 and above in order to qualify for an equity loan. getting an equity loan with bad credit is quite tough especially if the mortgage and housing markets are in a crisis.
  • debt to income ratio:
  • lenders prefer a debt-to-income ratio below 36 percent in order to approve your equity loan.

  • loan to value ratio:
  • lenders would like to keep your total loan-to-value ratio (including first mortgage balance and equity loan) equal to or less than 80% of the home value. so, the first mortgage balance is what they'll consider when they provide an equity loan.

what rates and terms are available?

the rates of equity loan are usually higher than that of first mortgages but lower than credit cards and unsecured personal loans. the terms usually range from 10 to 30 years depending upon the loan amount.

to know what the equity loan rates are, request for no-obligation free mortgage quote from lenders and then try to compare the costs and total interest you will have to pay for each type of loan offer. you may use the mortgage payment comparison calculator (given below) to compare how much you need to pay for each offer.

how much can you borrow?

you can borrow an amount such that the second mortgage and the first loan balance combined together don't exceed 80% of the equity in your home.
let's take an example:

say you've bought a home worth $220,000 and paid $20,000 as the down payment. you've taken a mortgage worth $200,000 on your property. the equity at the time of purchase is equal to the down payment, that is, $20,000.

let's say after 5 years, your home value has accelerated to $300,000 and you've paid down $15,000 of the principal loan amount. so, you still owe = $200, 000 - $15,000 = $185, 000.

your equity in the home is then = (current appraised value – amount you owe) = $300,000 - $185, 000 = $115,000

now say, if you wish to borrow $50,000 from your equity. then the combined mortgage balance is = $185000 + 50000 = $235000, less than 80% of your current home value (that is, $240,000). so, the combined ltv is well within 80% of the current appraised value of your home.

however, there are lenders who may offer a loan equal to 125% of the home value. but for that you need to pay higher fees and rates of interest compared to what you'll pay for a traditional hel.

what do you need to pay?

you need to pay the closing costs which are almost similar to the costs in a second mortgage. some of the costs include that of property appraisal, loan application, title search etc. of course the biggest cost that you'll have to pay is the interest on the loan. you may or may not have to pay the pmi.

what are the tax benefits?

the interest on a home equity loan is deductible but only if you itemize your deductions. know more on how to deduct interest on your taxes.
cashing out equity with a fixed rate equity loan makes sense when you stay in the property for a long time. however, for a short term, say, 3-5 years, a heloc or line of credit may be a better option. if you have enough equity, you may as well as look into the possibility of a cash-out refinance. you may use the cash-out refinance vs 2nd mortgage calculator (given below) to find out which will be better for you. another option used to leverage equity is the reverse mortgage but that'll be available only if you are aged 62 and above.

what are the other benefits?

these loans offer some distinct benefits to the borrowers. some of these benefits are –

  • the rate on these loans is relatively low.
  • it is comparatively easy to qualify for this loan even with bad credit.
  • this offers you the chance to obtain relatively large loans.


i bought a home a year ago for 200,000. Going into it I had 80,000 worth of equity with the mortgage crisis I have no equity in my home because property value went down. I've been late on a few credit card payments but recently bought a new Truck. Can someone tell me how I can still go about getting a equity line of credit to pay off some bills
Posted on: 04th Jan, 2009 06:15 am
Hi travon

With no equity in the property, you will not be getting a equity line of credit on your property. If you want to consolidate your credit card bills, you can look out for a debt consolidation company. They will help you in getting a debt consolidation wherein the interest rates will be reduced. I know a debt consolidation company - "debtconsolidationcare.com". You can visit their website and speak to their financial coach and see if they can assist you.

Thanks.
Posted on: 05th Jan, 2009 12:28 am
my home has been for sale..I would rather pay debt and stay...is there any one who will give an equity loan if I take if off the market...the house is worth 1450.00 and I have a 750,000 mtg on it
Posted on: 29th Mar, 2009 03:09 pm
Hi anyone,

You need to have equity in the property in order to get a home equity loan. If you don't have the equity, lenders would not give you a loan. I guess you are delinquent in your mortgage payments. You can speak to the lender about loan modification and check out if you can take advantage of it. This will also help you in saving the property.
Posted on: 30th Mar, 2009 12:01 am
describe a situation using long-term financing
Posted on: 22nd May, 2009 08:04 pm
Your question is not clear to me. It would be better if you could specify your situation.
Posted on: 23rd May, 2009 03:26 am
if the house is owned by several family members in a trust, and one sibling wants to take out a heloc (and will qualify) does everyone on deed need to sign?
Posted on: 23rd Jan, 2010 08:50 am
The loan will be given on the property as a whole. The lender will want owner of the property to borrow the loan. The family members may transfer the property to the sibling who can buy them out by giving them a certain sum of money. Then he/she can take the loan on that property.
Posted on: 25th Jan, 2010 02:51 am
I am looking for a 90% cash to value home equity line of credit...i have very good credit and am wondering which lender will give me a 90% loan....
Posted on: 22nd Feb, 2010 11:57 am
Hi Chris,

Lenders generally do not give such a high cash to value home equity line of credit. However, as you've a good credit score, you may apply for such a loan. It would be completely the lender's discretion whether or not you would get such a loan. You may even speak to the lenders of this community and seek a no obligation free mortgage consultation from them. This will give you an idea whether or not you would get the loan.

Thanks.
Posted on: 22nd Feb, 2010 10:54 pm
Is it possible to buy a home and recieve an debt consolidation home equity line of credit of 100% LTV after 1 month of living there if the house has available equity
Posted on: 26th Mar, 2010 07:20 pm
Hi heloctalker!

Welcome to forums!

I do not know about a debt consolidation home equity line of credit, but you may qualify for a HELOC if you have the required equity in the property.

Sussane
Posted on: 27th Mar, 2010 02:01 am
i own a house and buying another house i want to know if i should borrow money on a home equity loan or line of credit and is it worth it, better than paying pmi please help thanks
Posted on: 18th May, 2010 01:02 pm
Hi dantheman,

As you already have a mortgage on one property, it would be difficult for you to buy another home taking a new mortgage. Lenders may not be ready to give you a mortgage. You may take out a home equity line of credit in your present property to pay the down payment. Thus, you won't be liable for making the PMI payments on a monthly basis.

Thanks
Posted on: 18th May, 2010 11:55 pm
i have 3582 square foot home in houston neighborhood. i have a first mortgage of $2ll,060 at 7.25% and second mortgage of $50,667. at 11%. would like to refinance at lower rate. i have not have had home appraised. home in the neighborhood that are like mine are being apprasied at $259,950. are there any lenders that would refinace at lower interest rate? good credit/750. home six years old.
Posted on: 06th Jul, 2010 06:13 pm
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