When a Home Equity Loan is Good
Published December 3, 2007
[ From Lansing State Journal ]
Fearing a layoff? Prepare finances for jolt
John Waggoner
Gannett News Service
You can't help but notice the little signs at work that layoffs are coming. The closed-door meetings. The buzzards in your parking space.
The economy is slowing, and that means you need to be prepared. You need to make sure that your household can withstand the loss of income.
• Your first step: Make a rainy-day fund. Financial planners often recommend that you keep three to six months' worth of salary as an emergency fund. They're talking about the amount of money you need to pay your bills each month.
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Keep the cash in a money-market mutual fund or a bank money-market account. The average money fund yields just 4.2 percent, but you're not investing for the yield. You want access to your money whenever you need it.
• You also will need to reduce your expenses. Pay down your debts aggressively. Think of your debts as good debts and bad debts. Good debt is your mortgage, or any other loan that charges less than 6 percent in interest.
Bad debt is pretty much anything that charges more than 6 percent. A credit card balance that charges 18 percent interest? Bad debt.
• Consider taking out a home equity loan to get rid of your high-interest loans, if you don't have enough in savings to pay off the debt.
The catch: It's a lot easier to get a loan when you have a job. If you suspect you're going to be laid off, run to the loan office.
If you don't have a home equity loan available, cut up the card and stop making new charges on the account. Pay 5 percent of your balance this month. Pay the same amount each succeeding month.
• It could make sense to stop pouring money into your 401(k) plan and using it to pay down high-interest rate debt, said Kurt Brouwer, a Tiburon, Calif., financial planner. If your company matches your contribution, however, you should contribute at least enough to get the match.
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Basics of Getting a Home Equity Loan
Home Equity 101
People who are not able to earn that much working or have bad credit will have a hard time getting a loan from a creditor. The only way to borrow will be through home equity that uses the house as collateral.
Lenders perceive home equity loans as relatively safe. This is because the bank can simply confiscate the house of those who fail to pay.
Studies have shown many avail of this to consolidate high interest debts, finance the purchase of a second home, pay for the tuition in college and renovate or remodel the house.
Despite the risk of losing the house for those who are unable to pay, many still avail of this because it is for anyone to qualify for and get a huge amount. The interest rates are very affordable and this can be written off as a tax deductible.
One program that is gaining popularity is the 125% equity home loan. This is considered to be a second mortgage that allows the individual to borrow one fourth of the value of the home. If the house is worth $100,000, this allows the person to borrow up to $25,000.
Knowledge can give you a real advantage. To make sure you're fully informed about Mortgage, keep reading.
Many of these firms can be found online. The individual may only qualify after achieving a certain credit score and under certain guidelines, which is up to the lender.
The basis for those who qualify for this loan will be up to the lender. These firms can look at the length of time the homeowner has lived there as well the individual’s current credit score. These things will influence the amount that will be given when the application has been approved.
The lender will not require the applicant to have the property appraised when requesting for a home equity loan. The purchase price will be used as the indicator if the person has lived there for less than a year.
An automated value model, recent tax assessment or simple drive by appraisal will be utilized if the applicant has lived there for a number of years.
A home equity loan may last from 10 to 30 years. It is best to shop around and compare the rates of various lenders before signing anything on paper.
Everyone in the household must understand what will happen in getting this type of loan. This means making some sacrifices to cut down on costs to be able to pay on time rather than losing the house.
Home Equity Info
Real Estate Loans
The greatest American dream is to be able to acquire own home. Americans will do everything to realize this dream. When you finally realized this dream, you surely will not want to loose it.
However, people may loose this through foreclosure, especially if the consumer is unable to control their spending or in cases where the consumer is unable to meet his debt obligations.
Another reason why people loose their homes to foreclosure is when they acquire real estate loans.
In a real estate loan, you use your real estate property, most commonly your home, as collateral for the loan.
Loan collaterals are used to secure the loan. It is however reasonable that if you have a real estate property like your house and land, you can use this as loan collateral because you will be able to acquire loans with lower interest rates.
Lenders charges lower interest rates to real estate loans as compared to unsecured loans.
Another factor you may need to consider is the fact that if you already have enough equity in your home, you may use this equity to take out a real estate loan or a second mortgage on your home to pay-off the entire balance of your property.
You may also acquire real estate loans for other purposes.
In case of sickness, loss of job or other personal circumstances needing additional fund, it is easier to take out a real estate loan. Lenders easily approves real estate loan because they are sure to be able to get back their money whatever happens to the financial condition of their debtor.
It is therefore necessary that even if you have a real estate property, you need to be able to control your finances and avoid having to need real estate loans. The risks of foreclosure will never especially if you only spend within your means.
However, in extreme cases, the real estate loan will be able to help you. You only need to make sure that you will be able to pay your loans in order to avoid the risk of foreclosure.
Finally, if you will need a real estate loan, you may need to shop around for lending institution that are legitimate and charges reasonable interest. Additionally, you may need to read the conditions in the lending application to make sure that you understand it. This will ensure that you can meet all the condition and avoid not being able to recognize hidden conditions that will be too risky in your case.
For other information about real estate loans, and how you can protect yourself from unprofessional lending institutions, you may log on to the internet and find link and information on how to manage your debts and your financial condition
Home Equity Loans
Can you get a Home Loan with Bad Credit?
Home Equity Loans
Getting a home loan is just like getting recognition at the end of each academic year in school. Before you are awarded of any recognition, you must comply with the requirements for such recognition. For instance, before you will be given an academic award, you must first satisfy the required general weighted average on each or all subjects. Other awards also follows particular criteria before it would be awarded to deserving students at the end of the school year.
The same thing also goes in securing a home loan. There are certain requirements that you must meet before you will be able to secure a home loan. One of which is that you must possess a good credit rating.
However, despite the wide availability of home loans, there are still thousands of individuals who failed to secure home loans merely because they possess a bad credit score. They are not fully aware that any delinquency in paying their outstanding loans caused the “stain” in their credit record, thus they would be having a hard time securing a good home loan.
In other words, possessing a bad credit score simply means you are giving the lender reason to get more money from you through giving you home loans with high interest payments. You want to secure a home loan because you do not have enough money to finance the purchase of your new home, and yet you will be given a financial burden if you insist on getting a home loan despite of your bad credit score. That would be a terrible situation for your part.
Fortunately, there are still loan options for you despite your possession of a bad credit score. There are commercial lenders who offer bad credit home loan for individuals who are having a hard time securing a loan to finance the purchase of their new home. However, bear in mind that because of your bad credit standing, you will automatically become a “great risk” to the lender. Thus, expect that they will charge you higher interest rate as an assurance that you will be able to repay your home loans in the agreed period of time.
Bad credit score will really put you in a situation wherein it is you who is on the bottom of the wheel. Thus, you need to strongly convince your preferred lender that you are still worthy of another chance and not be a risk to them. How to do it? Have a look on the following guidelines and make sure that you will follow them.
• Research for the best available bad credit home loan offer in the market. You may prefer visiting various commercial lenders and financial institutions in your local area to know their terms and conditions as well as their rate of interest for home loans with bad credit score. In addition, a personal contact inside these financial institutions could be of great help in your credit problem.
• Cleanse your credit rating while there is still time for you to do so. If there are incorrect entries posted in your account, it is best that you call the attention of the authority with regards to this matter and have them clear your record of any incorrect rating. You may also ask for some certification from your previous lenders clearing you of any financial obligations. In this way, the recovery of your credit rating will be in place before you can secure another loan.
Getting a home loan with bad credit score could really be a daunting task. But if you manage to clear your rating in the shortest time possible, you will be able to secure a home loan that will not be a financial burden to your part later on.
home equity loans
3 Tips for Improving Your FICO Score
Home Equity Loans
It used to be that "people" made decisions about your credit worthiness. You knew your banker and your handshake was all the collateral you needed. Those days are long gone, and now a single number - your FICO score - determines your credit worthiness.
Although there are several credit models, the most commonly used is FICO, based on a model created by Fair, Isaac Company. Their consumer website is myfico.com, and you can find information about the FICO credit scores there.
Your FICO credit score can be used to determine your interest rate and how much credit a lender will give you. So taking care of your score, and keeping your credit clean will save you money.
Preserving your FICO score, and improving it, is not difficult, but it may take time. Here are some tips to maintain and improve your score, based on three credit situations.
Strategy One: Obtain a Credit History
There are many reasons you may have no credit history. Maybe you're just starting out, maybe you pay cash for everything and have never needed a loan. In any case, if you have no credit history, your FICO score is likely to be low.
The easiest way to raise your score is acquire a loan, and pay it off on time. In general, installment loans are weighted more heavily than credit cards. In other words, you will improve your credit score faster if you buy goods with an installment loan, rather than acquiring a credit card.
Another way to acquire a better credit history is to take $1000 and open a 6 month CD account at a financial institution. Now, get an installment loan for $1000, using that CD as collateral. Now, here's the trick. Take the $1000 loan, and open another 6 month CD account at another institution. Take another loan for the $1000 at the second institution. Do this one more time.
Now what you have is 3 loans. Pay the minimum payment for 6 months. In the last month, cash out your CDs and pay the loans off. You now have a credit history, and did not go into long term debt to get it.
Strategy Two: Maintain Your Good Credit History
Good job - you have paid your bills on time, and do not have high credit card debt. Here's some ideas to keep your FICO score as high as possible.
First, don't close your old accounts. One part of your credit score is based on the amount of credit available verses amount of credit used. Closing old accounts can lower this part of your score.
Second, paying off your credit cards every month is good money management, but you may be able to improve in this area. Here's the scenario: you have a $2000 credit card. Every month, you charge about $1800 to that card. And, every month you pay it off. But here's what happens - your credit card company reports your credit information monthly to FICO. If they report it before you pay off your card, it looks like you carry a balance on your credit card every month. You may find your FICO score improves if you pay off your credit card at a different time of the month.
Strategy Three: Repair Your Poor Credit History
For whatever reason, if you have a poor credit history, there are things you can do to improve your score. Some of them take time, and you will probably be best served by talking to a credit counselor to be sure that you not only repair your credit history, but also eliminate what caused that poor credit history in the first place.
The most heavily weighted part of your score is based on your payment history. The first thing to do to start repairing your credit history is to pay your bills on time. The mortgage is the most important, followed by installment loans, and finally credit cards.
The next largest portion of your FICO score is based on how you use credit. The fastest way to improve this is to pay down your credit cards.
One final thing to look for is errors in your credit report. Get a copy of your credit report from all three primary agencies, and look at all the entries. You can find the agencies here: experian.com, equifax.com, and transunion.com. If there are any errors, start the process to have them removed. Call your creditors - sometimes they will remove negative information.
Your FICO score is an important part of your financial life, and using these strategies may help improve your FICO score. Before making any drastic changes to your finances, consult with a financial advisor.
Home Equity Loans
4 Reasons You May Want To Refinance Your Mortgage Loan
Deciding to refinance your mortgage loan depends on different reasons for different people. It really is going to depend on your situation and knowing the reasons why you want to refinance. Let's look at 3 common reasons people refinance their current mortgage.
1. If you are paying too much every month for your mortgage it may be time to refinance. A drop in interest rates could mean big savings for you. If you have made your payments on time and have a good overall credit score refinancing at a lower mortgage rate could lower your monthly payment and help you have more money at the end of the month,
2. If you have built up some equity in your home and you need to access some cash refinancing your mortgage could be just the place to get it. If property values have increased since you took out your mortgage loan you are sitting on a pile of money that could come in handy.
Banks do not really care about what you want the money for. Common reasons to pull out some cash on the equity of your home could include paying for your daughters wedding, doing a home improvement, taking a vacation, or paying for college tuition.
All the bank wants to see is that you have a way to repay the loan and they are secured by the equity in your home when they do the loan.
3. If you have an adjustable rate mortgage that has crept up and is getting ready to roll into a high fixed rate this may be another reason to refinance. People take out an ARM to get a lower rate and to be able to qualify for a little bit more expensive home.
After a number of years the ARM will be ready to settle into a fixed rate loan. Depending on the fixed rate you may be able to do better by refinancing. Your mortgage loan professional can help you decide the best route for you to go if this is the case for you.
4. One other reason that people look at refinancing is to shorten the length of the loan. That is commonly done when you want to go from a 30-year loan to a 15-year loan.
If your income has gone up and you determine you want to stay in the home you have for many years to come then this makes sense. Paying off your loan early gives you the peace of mind of knowing you own your home.
These are 4 good reasons that you may want to refinance your mortgage loan. The important thing is to know "why" you want to do it and make sure it is best for your situation.
Using Your Home Equity for Home Improvement
Home Equity Loan
You want to add a deck to your home to enjoy your evenings outside with your family and friends. You have cash sitting in your bank or you have a few credit cards that you can tap into to finance your home improvement. What is the best option? Should you get a Home Equity Line of Credit? Making the right decision is based on knowing various pros and cons of different ways to finance your project and your current situation. Even if you have cash sitting in the bank, it may not always be the best option.
If you have cash at hand, it should be earning at least 5% in a savings account. If you are not earning 5% from your bank, dump them and go to a bank that will give you at least 5% on your money. Search the Internet and you will be able to find a few online savings accounts, offered by well known banks like Citibank, Emigrant bank or HSBC that will give you a 5% return on your deposit.
If your credit is good and the project is small, search for a credit card that will give you 0% interest rate for a year. Apply online and get approved instantly. Within a couple of weeks, you will get your card and you will be able to use it for your home improvement project. You can use the same technique for store credit cards, Master Card or Visa. When you get a loan on 0% interest rate, make sure that you don't miss a payment. To avoid missing a payment, use online payments offered by many banks for free or the online payment option of the credit card company. Using an online payment, setup a scheduled payment plan for the monthly payment to the credit card. If you miss a payment, your credit card company will withdraw your 0% rate and may even impose a high rate on the remaining balance. So it is very important that you don't miss a single payment. Be aware that when you use a credit card to finance your home improvement project, you cannot claim any tax deductions on the interest you pay. Hence, it is extremely important that you retain your 0% interest rate till you pay off the loan.
If your home improvement project is a large one and you want to do it in stages, HELOC, or Home Equity Line of Credit, is a good option. Search the Internet to get the best rate. Find a bank that not only offers the best rate but also waives the finance charges. When you take a HELOC loan, you are essentially putting your home as collateral and the interest you pay may be tax deducible.
Refinancing your home is a good choice if you have a large equity in your home or you want to reduce your existing mortgage rate. Also, if your home improvement project will add substantial equity to you home, refinancing is an attractive option. You will also get tax benefits on the interest you pay.
Obtaining a second mortgage to finance your home improvement project makes sense if you get a low fixed interest rate and the interest rate on your first mortgage is even lower than the second mortgage. A second mortgage involves less paper works than a full refinancing.
Are you thinking about getting your money from your company's 401 (K) plan? Forget it. Don't use your 401 (K) plan money for your home improvement. A 401 (K) plan is for your retirement not for your home improvement projects. If you are not old enough (59.5 years or more) to take a distribution, you will have to pay tax and 10% penalty for any withdrawal from your 401 (K) plan. Borrowing against your 401 (K) savings is also not a wise choice because 1) you have to pay it back with the above average interest rate 2) money borrowed from your 401 (K) plan will not earn anything in your 401 (K) plan till you pay it back completely. On top of that, if you are laid off you will be hit with the tax and a 10% penalty unless you pay the remaining balance in one lump sum.
Don't make a decision on haste. Weigh the pros and cons of various methods discussed above and your current situation. Find the best way to finance your home improvement project using other people's money and without hitting your pocket book hard.
100 Home Equity Loan
3 Ways to Build Equity in Any Real Estate Market
Home Equity Loans
Market fluctuations, demographic location, and owner upkeep all play an essential role in the value of your home. Your equity is the difference of what you owe on your mortgage(s) and the current market value of your property.
In many cases equity takes time to build up any substantial amount. Of course when the market turns on a flat or downward spiral you can lose a substantial amount of equity if you are not prepared for it.
The average appreciation is 7% per year for a national average and in some cases we have seen up to 20% or more. Although these are rare occurrences they make the real estate market the most lucrative marketplace in the country.
One of the most common misconceptions about real estate is leverage. When you have exceeded the 80% Loan to Value limit on your mortgage you are eating away at your own personal wealth. Your interest rates are higher and your overall cash flow is decreased substantially.
So how can you build and protect your equity in any type of situation while keeping your shirt on your back? There are several options.
The first and most common way to build equity is the old fashioned fixed rate loan with terms between 10 - 50 years. Of course the longer the term the more prolonged the pain of a mortgage may be.
If we were to look at a number line and we placed from left to right the terms (length of time for the fixed period) of the fixed rate mortgage you would see starting at the left 6 months to 50 years. All of these would be increasing 6 months, 1 year, 2 years and so on...
All of these numbers would be on the bottom of this rule. Secondly on top of the number line you would look at interest rates starting from the left let's look at the 6 months term = 5.5%, the 1 year term = 5.87% and the rates increase upward the longer you secure your fixed rate period.
The second option is using an equity builder program such as the biweekly payment plans or the extra principle payment once a month to your mortgage lender. Problems here are the extra amounts of cash going to the lender and the extra steps in paying your biweekly payments.
The biweekly payment plan works because interest is calculated on a daily principle balance if you pay 1/2 of your mortgage on the 1st of the month and 1/2 on the 15th of the month you essentially cheat the system because you are breaking the interest accrual down from every 30 days to every 15 days. Hopefully your lender is quick with payment processing.
The third option is to calculate the difference between your fixed rate mortgage and an interest only mortgage payment. By obtaining an interest only payment and paying the 30 year fixed rate payment you are again cheating the system by lowering the principle every month.
This results in building equity faster than the traditional fixed rate mortgage.
Home Equity Loans
Considering a Home Equity Loan?
Home Equity Loan
If you own your home you have a financial resource available to you that can help you with your financial needs or concerns. What is it? HOME EQUITY!
Equity is the value of your home minus the remaining mortgage balance which is outstanding. While you live, eat and sleep in your home worrying about debts or wishing you could refurnish the living room you may be sitting on the cash that will grant your wishes.
Why Would You Want an Equity Line of Credit?
Unlike a typical loan which deposits a set amount of money in your account and begins charging you interest and payments at a fixed rate until repaid, a line of credit acts as a revolving credit (like your credit card). You do not need to pay interest on the full amount you have access to -- you only pay for what you have used. Also, like a credit card, when the debt is repaid you still have access to the credit.
Using an equity line of credit (also known as a Home Equity Line of Credit or HELOC) gives you greater flexibility with the least cost. Not only can you access the credit only as you need it, but your monthly payments will reflect only the balanced used. The less used the lower your payment. Some lines of credit have only the interest as the minimum payment which can be helpful when finances are tight.
An equity line of credit is great when you don't have a large fixed amount to spend in one place that will take many years to repay and you want access to the credit without asking for a new loan when you have paid it back.
What Can I Use the Equity Line of Credit For?
While you can no doubt find numerous uses for your line of credit, here are samples of the more common reasons for obtaining an equity line of credit.
Consolidate Debts
Using your equity line of credit to consolidate other debts can not only eliminate the stress of multiple bills but can also give you a more favorable interest rate or tax benefit.
Second Mortgage
Use your line of credit to pay off the existing mortgage for better interest rates.
Add On, Update or Go Away
You may use your line of credit for renovating, buying new furniture or a car, or taking a vacation with less interest payments than using a credit card or store card making it a wise choice for large purchases.
When Should You NOT Use a Line of Credit?
Before succumbing to what seems like 'easy money' it is important to evaluate the additional risk.
Some debts -- like student loans- have features that you may not be entitled to if you switch them to an equity line of credit.
Other items like cars and vacations may seem like a good idea to buy with your home equity line of credit, but with the ability to pay only the interest you may find the motivation to pay off the debt is lacking and end up owing for items that have lost their value or were consumable. Plan to pay off the debt quickly for the most advantage.
Second mortgage (or refinancing) may or may not be a good idea depending on interest rates and your repayment terms. While lines of credit take advantage of current low interest rates you may find that your regular loans protect you better from fluctuating rates if you will not be paying the loan down in the next few years.
Using your finances wisely can give you great relief and freedom. Before taking on any financial obligations it is important to understand the risks as well as the benefits.
100 Home Equity Loan
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