|
Home Equity Loan
If you're like most financially
savvy folks, you've either refinanced your current mortgage to a
rock bottom rate that you can brag about at the family reunion,
or you've recently purchased that dream home you've been working
hard toward. Regardless of your situation with the first mortgage,
you did take the time to get a home equity line, too, right? You
didn't? Well there is still time, and you will still sound pretty
smart when you are talking to your long lost uncle Bob at the next
family meeting.
why Get a Home Equity Line of
Credit
Why obtain a home equity line of credit? Maybe the
answer to this question is another question. Why wouldn't you get
a line of credit? After all, prices have skyrocketed around the
country, meaning that your home is worth much more today than when
you purchased it, even if that was only a few months ago. As a result,
you have untapped equity that you could put to good use.
Advantages of a Home Equity Line of Credit
For instance, you might be thinking of selling your
home in the next few years and need to update the house, since shag
carpet and wallpaper border went out with Vanilla Ice and M C Hammer.
A home equity line of credit could give you the ability to put modern,
updated items in your home, which would help you sell faster. Additionally,
consider paying for your child's college tuition with your home's
equity. In many cases, it gives you the ability to write off the
interest if you itemize your personal taxes.
What about that dream vacation you've always wanted
to take? Wouldn't it be great to actually do it first class all
the way, rather than throwing it together and trying to cut corners?
A home equity line of credit will give you that option.
A no income verification home equity loan is a second mortgage loan
that does not require you to provide income documentation to qualify
for the loan. This type of loan is great for homeowners who need
a home equity loan but have hard to document income. The majority
of borrowers with hard to document income are either self-employed
or commission based employees. Consumers who fall under these categories
may have high income but have a lot of business related deductions
that they write off on their taxes. This is good on the one hand
as it reduces the taxable income and thus the amount of taxes owed,
however, when it comes to getting a home loan it can hurt as most
lenders use the average of your last 2 years taxable net income
(the amount left after all of your deductions) to determine your
income figure for qualifying purposes. This may cause you to have
a debt to income ratio problem if you have a high debt load and
thus keep you from qualifying for the loan. With a no income verification
home equity loan, however, your gross income can be used for qualifying
purposes as opposed to the net income. In order to qualify for a
no income verification home equity loan you will, in most cases,
need good credit and a high credit score. Expect to pay a higher
rate for this type of loan as opposed to a traditional loan in which
you have to document your income. Also, even though a no income
verification loan does not require you to document your income,
some lenders may require that you have a certain dollar value of
assets on hand which must be verified. Not all lenders have this
requirement though - some lenders offer a program called NINA which
stands for "no income no assets" meaning you do not have to document
either. Loan guidelines and rates vary from lender to lender so
it is a good idea to shop around to increase your chances of getting
the best deal available to you.
Home equity loan information can sometimes be confusing and misleading.
I have written this article to properly explain home equity loans.
Basically equity is the difference between your home's appraised
-- or fair market value and the outstanding mortgage balance you
owe on your home. Borrowing against the equity built up in a home
has become extremely popular. If you're wondering why this has become
popular it's due to the tax deductions and the low interest rates
that are current in today's housing loan market. It's also because
of the growth of equity in most people's homes. For instance if
you buy a house for $100,000 with a down payment of $20,000 and
have made payments of $10,000 towards the principal then you would
have $30,000 in equity. But wait suppose your house has increased
in worth to $120,000 in that case then you would have $50,000 in
equity that you could use for a home equity loan. This equity is
very valuable because you can use it without selling your home.
Banks consider this equity to be secure since it is based on your
house so they are more inclined to give you lower rates when loaning
money against the equity. However, don't be mislead. The cost for
these loans is higher then your actual mortgage rate but since many
people use their home equity loan to pay off credit cards or make
house improvements they end up paying less then if they had gotten
a traditional loan. Best of all the interest on this type of loan
is also tax deductible. When you add it all up you can actually
save money in finance charges.
Home equity loan is the loan you take against the home equity, which
is calculated as the difference between the value of your home and
the amount that you owe as against the home as collateral. It is
a very good option for the borrowers who have bad credit and usually
find difficult obtaining loans of high amounts. The lenders give
out home equity loan with lowest rate because with real estate being
stable investments, they find home equity loans relatively safer.
For borrowers these loans are definitely a lucrative option since
they have low rate of interest, are easier to qualify, the payments
are tax-deductible and large amounts can be borrowed depending on
the value of property used as the collateral. Loanshopusa.com is
an online resource where you can obtain home equity loan with lowest
rate.
The getmaxloan webiste as an a resource for consumers who
want to reach lenders who are willing to provide home equity loans
against the collateral, even to those with bad credit history and
the borrowers who wish to borrow large amounts but have not qualified
for other types of loans. It is not necessary that you get an equity
loan only on a house that has been purchased through a home loan
but it is mandatory that the house is your primary residence. You
can take home equity loans for renovating our house, pay for education
of children, finance a new house purchase or for debt consolidation.
Remember, it is important to get the right home equity loan or else
you may end up losing your most valued asset or thousands of dollars
in the form of interest and fees. So, before selecting a loan provider
you must shop around. Selecting a home equity loan online, especially
at a website like loanshopusa.com makes this tedious job easier
as there are hundreds of lenders that you can access, enabling you
to choose the best deal for your set of circumstances.
Bridging loans
By Matthew Richards
Published: February 24 2007 02:00 | Last updated: February
24 2007 02:00
The property market is so hot that in many parts of
the country you need to be able to make an offer at lightning speed
if you want to secure your dream home - or any home for that matter.
Estate agents in hot spots often put a property on
the market in the morning, and see their client accept an offer
above the asking price in the afternoon. Some properties are so
popular that they go to sealed bids - an auction process in which
you do not know how much other people are bidding.
You may also need to be quick on the draw if you want
to buy a new property. Many developers are only willing to accept
an offer from a buyer who can exchange contracts within 28 days.
All this puts you at a big disadvantage if you already
own a property and are looking to trade up. Putting in an offer
for your next property without having a buyer lined up for your
existing one can be a big gamble because some vendors will entertain
an offer only if the property you are selling is already under offer.
This is a particular problem if you are under pressure to exchange
contracts on your new property as soon as possible.
So how does a bridging loan help?
It enables you to buy a new place before you have
sold your existing home. During the transition period, you will
own two properties, and the chances are you will be heavily in debt
as a result. A bridging loan could be the only way to borrow enough
to tide you over.
How does it work?
Take the example of a couple owning a £300,000
flat, on which they have an outstanding mortgage of £150,000.
They have fallen in love with a house selling for £500,000,
but the seller will only accept their offer on condition that they
exchange contracts within four weeks and complete the purchase within
six weeks. The trouble is that they cannot sell their flat in that
time frame. Their savings can cover the £20,000 stamp duty,
conveyancing fees and other expenses, but they need to borrow £500,000
to pay for the house. They cannot persuade a bank to lend them 100
per cent of the house's value because their combined income is not
high enough, so they need a bridging loan.
What are the terms of a bridging loan?
In the above example, the couple's bridging loan would
be £500,000. They would have to pay an arrangement fee, which
on a typical bridging loan is 1 per cent of the loan - £5,000
in this case. The interest rate would be about 1 per cent a month,
or £5,000 monthly. They might also face an exit fee of 1 per
cent. So even if the bridging loan only lasts for two months, it
could cost them a total of £20,000.
That's a lot of money - is there any way to defer
payment?
You can "roll up" the interest payments
and fees, and add them to your new mortgage after you have sold
your old place. In the above example, the couple could sell their
old home and take £150,000 proceeds from the sale, after paying
off their old mortgage. They would set this £150,000 against
the £500,000 bridging loan and £20,000 in rolled-up
costs, leaving them with a debt of £370,000 that they should
be able to cover with a standard mortgage.
Should a bridging loan be the first option I consider?
No, according to Ray Boulger, senior technical manager
at John Charcol, the mortgage consultants. "People should not
assume they need a bridging loan," he says. "In most cases
it would be cheaper to take out a 100 per cent mortgage."
If you can do this (that is, you have sufficient income
to secure a conventional mortgage), he advocates a deal with a short
tie-in period, or otherwise a mortgage that allows you to make a
big extra repayment without incurring a penalty when you receive
the proceeds from the sale of your original property. Boulger adds
that although bridging loans are popular in a hot property market,
they can leave you in the lurch if the market slows and you have
trouble selling your original property.
So why would someone take out a bridging loan?
Not everyone can take on a 100 per cent mortgage -
you need a strong credit rating and a high income relative to the
amount you are borrowing. Boulger says that for sums of £500,000
or more, Scottish Widows is the only lender that will consider a
100 per cent mortgage.
What is the best deal out there?
Boulger highlights an offering from the Royal Bank
of Scotland, with a 1 per cent arrangement fee for loans of up to
£500,000, and 0.8 per cent for larger loans. The annual interest
rate is 2.25 per cent above the Bank of England base rate, which
works out at 0.6 per cent a month. There is no exit fee.
That's still pretty expensive. Is there a better
option?
Lloyds TSB offers a "closed" bridging loan,
where you agree in advance when you will repay the full amount.
This could be suitable if you have agreed the completion date for
the sale of your original property. The arrangement fee is 0.5 per
cent, and the annual interest rate is 1 per cent above the Bank
of England base rate.
How big is the market for bridging loans?
Fairly small - the total value of outstanding bridging
loans is £200m, according to the British Bankers Association.
But that figure is deceptive, because a bridging loan only lasts
for a few weeks or months - so the value of bridging loans made
every year is probably about £1bn.
Copyright The Financial Times Limited 2007
|
