Technically speaking, home equity is a liquid process. Liquidity in terms of the market means the ability of the investment, or business process with minimal risk of loss.
What is home equity
Mostly, home equity extends the credit line of the mortgage value. However, sometimes allowance for this process is not supported after a “draw period” (this may vary); hence, the investor/homeowner fails to make ideal use of his equity.
Home equity is completely dependent on the market. It is not necessary that the home equity be always positive and redeemable. Payments by the debtor against mortgage balance or an increase in the market value of the home increases the property’s equity.
How home equity works
As previously mentioned, home equity is payable in the form of a further loan known as a home equity loan. You can borrow more credit as per home equity value and the mortgage balance paid. A home equity loan is taken against the home equity.
Hence, if the market value of the mortgaged home gets a boost, the home equity loan can help you finance major expenses such as medical or college education bills, repairing of homes and other expenditures.
For example, a home worth $100,000 is mortgaged and an amount of $80,000 is borrowed, leaving $20,000 as equity. Now, five years or ten years from the date, the market value of the home jumps to $200,000 and in those years, the debtor was able to pay $50,000 leaving a $30,000 mortgage balance.
The total redeemable, home equity left to the debtor is $200,000-$30,000=$170,000, which means an amount of $170,000, can be borrowed as a home equity loan. Since, we have mentioned the role of the market value of the home, considering the same case, if the house price after few years drops from $100,000 to $50,000. Since home equity is now negative, no loan would be given.
Since you get a loan on your mortgaged property, home equity loans are referred to as second mortgages, and they are actually secured by your property/home. The term of this loan is shorter than a primary loan and varies from five to 30 years, entirely depending on the provider. It can be said that the home equity loan is a very flexible and positive way to get extra benefits and so are the mortgage debts.
What You Need to Know About Home Equity Loans
A Home Equity Loan is similar to the first mortgage on your home. The equity in your home has been due to monthly mortgage payments as well as the increased property value that over time has added up. The real difference between the appraised worth of your home and the balance that you owe for the home loan is what is known as equity. If you want access to these funds, then you want a Home Equity Loan.
Why Get a Home Equity Loan?
There are many uses for a Home Equity Loan. Lots of people use the proceeds for other investments, expenses, home improvement projects, to settle the debt, and other purchases or necessities. This type of loan can be very useful when you need a lot of money to pay off unexpected bills including medical expenses or any large expenses.
Benefits of a Home Equity Loan
It is important to be familiar with the advantages of a Home Equity Mortgage Loan. An advantage to this type of loan is that it is rather easy to obtain if you have an existing property since banks will typically consider it a minimal risk loan. This even applies if you have a poor credit score. The lender will certainly still take into consideration your own payment history and the marketplace equity of your property prior to approving this particular mortgage.
This type of loan also usually has a lower interest rate than other types of financial loans, thus saving you a lot of money over time. The particular closing costs on this form of mortgage are often significantly less than other mortgage loans and many lenders even offer zero closing costs.
Home Equity Loan Terms
The Home Equity Loan is in many ways similar to a home mortgage loan. You have a given period of time to pay off the loan whilst you pay for the interest. These loans generally require a shorter payback than home mortgage loans, usually, this settlement term is several years although it might be as short as 5 years. These types of loans can be obtained as fixed or with variable interest rates. The people with bad credit ratings might still qualify although with different terms when compared to someone with a far better credit history.
Home Equity Loan Solution
A Home Equity Loan is an excellent loan for people who need access to the equity in their home for any variety of reasons. This equity on the property may be used for dealing with many problems from medical bills to the consolidation of outstanding credit card debt. It is important to remember that you use a trusted lender to help you receive competitive terms and rates for your home equity loan.
How to Get Home Equity Loans
Home equity loans give you cash in hand for home improvements or anything you want. The right kind of loan can slash your monthly loan repayments.
Such loans can normally be used for any purpose e.g. vacation, home improvements, etc. But some home equity loan providers might have extra lending criteria. Some might demand you spend the money on home improvements and provide them with receipts.
Many lenders or companies that offer such services are flexible on who they approve. After all, they have your home as security. However, most of these lenders will usually look at your monthly income, and take a multiple into account when making a decision.
While the lenders are more flexible than with an unsecured advance, they still won’t like a bad credit record. If you have a very bad credit report then it’s possible or even likely you’ll get refused. In that case, all you can do is try to establish some communication with your lender.
Okay, if you’re dealing with a credit scoring computer, you probably won’t get far. But try to communicate with a human at your lender – explain the situation and maybe you can get the advance you want.
If all else fails, you might be able to get a payday loan or another type of advance to give you the cash you need.
A home equity loan can be a quick and easy way to raise cash. If you get the right deal, your monthly payments might even drop for a period of time (if you get a special deal). But remember you’ll be paying for that extra money right thro the full term of your deal.
Be sure to check home equity loans deals from at least 3 lenders. Most lenders offer different deals, so it’s important to shop around.
Equity Loan Rates
Home equity loan rates vary by different lenders. If you’re a new borrower, you can usually get a special deal on the rates. But if you’re an existing borrower, you might have to switch lender to get the more desirable rates!
You can easily find and compare the different home equity loan rates by studying lenders websites or going to consolidation sites. Consolidation sites track all kinds of personal finance in addition to home equity loan rates – credit card deals, car loans, etc.
You may start your journey by looking at equity loan rates on consolidator sites. Then go to individual lenders sites. Maybe call a broker and get some info from them?
The rates that you going to get may vary depending on how much you want to borrow. The rates for this type of loan can vary with time i.e. as a new borrower you might get a special two-year deal, after which you revert back to the lenders.
Sometimes, there’s an extended penalty if you’re offered good home equity loan rates i.e. the lender will fine you a % of the loan if you make an early switch.
Bad Credit Home Loans
Bad credit home loans are available to almost anyone. But they can be expensive. Also, it’s unlikely the lender will advance bad credit home loans for a high % of property value.
There are also a lot of lenders and companies providing these types of loans. Obviously, they’ve got the security of your property, so they’re not taking a major risk they try to imply.
Try to get a standard loan first. But if none of the mainstream standard lenders will give you a loan, it’s time to look for a bad credit home loan.
Any problem you will get if choosing bad credit home loans?
No, you get to buy the home of your dreams, when otherwise you couldn’t. The only drawback may be the cost and terms of this loan.
Usually, you’ll only get a loan for a smaller percentage of the property value. That means you need to make up the remainder in some other way. Maybe you can save the cash, or take a different kind of loan.
The interest rate on a bad credit home loan is usually a couple of points higher than standard. So most of the lenders will not take any risk. They’re taking a higher interest rate to cover the percentage of people who default. Yet, they’ve also got security on the property, on which they’ve loaned a smaller percent anyway.
Home Loan Calculator
Home loan calculators help you work out the best deals. With the use of an appropriate calculator, you might find a way to slash your monthly repayment costs, yet still, get cash in hand!
A home loan calculator is usually easy to use. Put in the estimated value of your home. Put in the amount you want to borrow. Put in the estimated interest rate you have to pay. Click Calculate and all the figures should come out of it.
It is an ideal tool to try a variety of ‘what if’ scenarios. For example, what if you can get a lower interest deal for the first two years of your home equity loan? What if you borrow more? What if you borrow less?
Before you take any home loan, be sure to check out and use some home loan calculators.
Home Equity Provides Funds for Meeting Essential Expenses
The home-mortgage scenario during the period of recession has seen millions of people being driven to the streets, not virtually, but in reality. Losing their jobs and unable to pay the mortgage installments as per the contract terms, many people had to live in the open with their families, pitching tents or in their cars.
Having no reliable sources of income, these people find themselves unable to meet some immediate expenses like starting college education for a son or a daughter or meeting medical expense that is necessary. Home equity has been designed to help such people.
Amount of Loan Available From Mortgage Equity
The amount of loan that can be availed on home equity is based on simple calculation. It is based on the existing market value of the property, minus the mortgage amount due. In other terms, it means the full value of the home may be utilized.
The money thus received, is meant for emergency uses and not for daily expenses. Some may be lucky if the value of the property has appreciated after taking out the first mortgage.a
Lenders of home-equity loans are very cautious while handing over the loan. No doubt the lender is taking a great risk because the recipient is already a defaulter. The lender tries to get some compensation by charging a fee to entertain the application. Of course, the rate of interest charged is higher.
Prudent Use of Mortgage Equity Loan
A person, who applies for a home-equity loan, is not eligible unless he can produce proof, of how he proposes to use it. Usually, people in such dire situations have other commitments also like unpaid credit card bills with threats of legal action.
The home-equity loan can be used to make credit card overdue payments. For others, who have lived more sensibly, but with very little savings, the loan comes in handy to meet immediate expenses of very urgent nature.
Recession apart, this holds up the extravagant lifestyle enjoyed by a majority of the people not justified by their incomes. Immersed up to their necks in debt, it is essential that they alter their lifestyles. Not only must they learn to live within their incomes, but also save a little to avoid a future financial crisis. It means the home-equity loan should be availed of only if badly needed.
Five Tips for Securing a Mortgage
Two unfortunate life circumstances can appear to be at odds with each other. The first is the desire to purchase a home of your own. The second is your bad credit score. Whatever the reason for your bad credit, there are still chances that you can get a mortgage.
Pay Off Current Debts
Whether a gaudy credit card debt or a car loan, paying them off is an important first step. This shows the bank you’re going to for the mortgage that you have the ability to take care of debts. Play around with debt calculator to see what kind of payments you can make to speed the process up and how quickly you can accomplish that.
Even if it takes several years, going into a mortgage application debt-free is ideal. Plugging current debts into a debt elimination calculator allows you to see how they interact and the broad picture for your repayment.
If you can’t actually pay off your debts in an appropriate amount of time (especially if you have a bunch of student loans), you might want to consider some kind of debt consolidation. Use a debt consolidation calculator to see how your situation looks with the only loan.
Look at Affordable Houses
You don’t need that sweet five-bedroom palace you’ve always dreamed about owning, even though it is on the market and listed below market value. Think conservatively and look at a modest house. The cheaper the house, the less risk the bank will feel like they’re taking on by providing the mortgage.
Play around with a mortgage loan calculator and see what types of mortgage sizes seem compatible with your financial situation. A home loan calculator allows you to manipulate possible mortgage amounts with payment sizes and interest rates to see how long your mortgage will run—and how much it will end up costing you overall.
Recognize That Your Interest Rates Will Be Higher
Interest is how the banks make the money for themselves and their investors. The greater their risk, the bigger the payoff needed for them to be interested. Recognize from the get-go that your credit standing means that you’ll have to pay more money over time than someone would with better credit.
Have a Steady, Consistent Job
It may seem like a no-brainer, but being able to prove that you make the necessary money on a month-to-month basis will make you less of a risk. Have a budget that includes your mortgage payment. Crunch the numbers and showcase how your mortgage payments aren’t too far from your current rent.
Pay a Good Percentage of the House Upfront
If you can save up the money to be able to pay even twenty percent of the cost of the house at the time of purchase, banks will be much more likely to ignore your bad credit score. They’ll see that you are serious about the purchase and are willing to invest in it. Use the debt elimination calculator to see how fronting some of the money upfront effects your mortgage payments.
Read also: Would Refinancing My Home Be Worth it?
Things to Consider When Seeking a Mortgage Loan
There are a lot of things to consider when trying to find a mortgage loan. The most obvious is to find a good provider, in the hopes of finding a better interest rate. Not being cheated by an excessive rate is important, but there are many other things that are equally important.
The first is whether or not the customer desires a mortgage loan. While this question might seem obvious to someone who wants to buy a house but cannot pay cash, it is less obvious for someone who is seeking a secondary mortgage. Some people obtain loans by risking their house or other property.
The house is not a new purchase but something already owned in full. The reason to obtain a second mortgage is to gain a large loan with a low interest rate. Even modest-sized loans can be secured by a house, and some people obtain cheap credit this way. The disadvantage of defaulting on such a loan is the economic losses incurred through foreclosure.
The sale of a house will pay off the remaining loan, and anything left over will be received by the former owner and any brokers or lawyers involved. Typically, the only way to obtain a second mortgage is by having the first mortgage largely paid off. In times of easy credit, it is not too difficult to obtain a second mortgage, even with remaining equity.
The risk of having a home divided up between creditors is always there, but banks are generally generous with payment options before making a foreclosure. Usually, it is very costly to repossess a home. When the housing market is down, a bank runs the risk of losing a good portion of its investment. The financial needs of the bank, therefore, drives the relative safety of the mortgage market.
Mortgages are the principal means by which people obtain property. Everyone needs a place to live, and having a property can be better than renting an apartment. The value of home tends to appreciate over time and money paid to the bank is kept in the value of the home. Aside from having to pay your own utility bills, owning a home can be a great investment.
The most important thing with mortgage loans is that they are selected wisely. A person should look at their own finances and see which loan they would most likely be able to keep. It is better to enter into a house arrangement by paying for part of the cost up front. Banks will typically offer a better deal if there is some money down.
The final thing when looking for a mortgage loan is to look at the bank. All longstanding banks are fairly trustworthy. Some have a history for foreclosing on the property without going through a program or showing much generosity. Until the mortgage is paid in full, the house at least partially belongs to the bank. They have the right to sell it for you.
Read also: True Advantages of Lawsuit Loans
Tips on Getting Mortgage Loans for Bad Credit
A bad credit history is not an ideal starting position when purchasing a new home. This should not discourage you though since most lenders offer mortgage loans for bad credit to help you.
You may have made incorrect financial decisions in the past or maybe faced unforeseen events which lead to the worsening of your credit score. Lenders take this into consideration but knowing how to improve your chances of being granted the loan is also essential.
Different Strokes for Different Folks
The cliché works for mortgage loans. Lenders have different guidelines and requirements that need to be met before granting a loan to an individual. The rules are customized for a variety of loan programs that they may be offering.
A lender may have different interest rates and different monthly payments for a loan which has a fixed rate for thirty years and for a loan that is fixed for the first five years but variable for the rest of the term.
Lenders will differ in their guidelines and what they offer borrowers. A mortgage loan for bad credit offered by one lender may be cheaper compared to another lender who offers it for the same term of the loan.
Know Where You are Standing
Even if you are aware of your unwise financial decisions in the past, it will not hurt if you will check your credit report. You can check for the accuracy of the entries in the report. If you see something malicious or unclear you can contact the contact bureau to clarify or challenge the errors.
A credit report practically shows the past seven years of your credit track record. It will reflect the different trade lines through which you have transacted like credit cards, car loans, mortgages, student loans, and collections.
The credit report will also reflect any delinquency on your part like default payments which may include credit card bills which needed the follow up of the collection department. The late payments are often categorized on a 30-day interval on the print out of your credit history.
A missed payment for a mortgage two years back may not hurt as much as a credit card bill which you missed on paying consistently. Both pictures though are not very ideal and may be considered as a mirror of your paying habits.
It is also advisable to exert effort to clean small bills which you may have overlooked in the past. A cumulative look at these small problems may be seen as irresponsible financial management which may lead to the declination of applications for mortgage loans for bad credit.
Be Ready to Explain
Submitting an application form for a loan with a concise letter explaining the reasons for some weaknesses in your application may be a great help. Lenders may understand inevitable situations like medical emergencies, unemployment, or other disasters that you faced in the past. A clearer picture also means a bigger chance of approval for the loan application.
Save, Save, Save
If you are planning to apply for mortgage loans for bad credit, be sure to save some money. This reserve may be another key to show the lender that you have learned from your mistake and you are more financially responsible now or you are earning enough to be granted a loan to purchase a home.
Six Tips For Capitalizing on Your Home Equity Loans
Home equity loans give homeowners the ability to use the equity of a home without being forced to sell the property. They have many advantages, but you should know what you’re doing first. Below are six tips for capitalizing on your home equity loan.
If You Have a USDA Home Loan
A USDA home loan is a mortgage that is backed by the US government. Due to the fact that the government is involved, there are certain restrictions for borrowers. Sometimes adding a home equity USDA loans direct will be blocked by the terms of the mortgage. In this case, refinancing may be the better option than getting a first time home loan.
Improve Your Credit Score
A person’s credit score will typically be factored heavily into whether or not a person is granted a home equity loan. Before you apply, find out what your credit score is. If it is rather low, take steps to raise it. Also, make sure to examine your credit history for any inaccuracies.
Wait Until Home Prices Stabilize
You also need to know the correct time to invest in a home equity loan. Research the current home prices in your area. If they are falling, you should wait for those home prices to stabilize so a better market will support your investment.
Home Equity Loans Should Be Used for Substantive Investments
In the past, certain misguided mortgage holders used home equity loans got to pay for luxury expenses like vacations, boats, pools, and new cars. These people often ended up in the poor house. Instead, use the equity in your home to make investments that will pay off in the long term. Good choices include investments aimed towards paying for your next home or funding your retirement.
Using Your Home Equity Loan to Increase Your Earning Potential
Again, home equity loans should only be used to make investments that are likely to pay out dividends. Another great choice is using a home equity loan to increase your earning potential by furthering your education.
Home Equity Loans as Debt Consolidation
Another option for implementing a home equity loan is to use it to consolidate multiple debts. This can greatly simplify things, reduce your stress, and allow you to lower your borrowing costs. However, only choose this option if you have the diligence to properly manage it.
Overall, home equity loans can be used for many different things. However, if you don’t do the proper research and make the right choices, it could end up harming you in the long run.
Read also: Build Your Home With A VA Loan