Many people are thinking about refinancing their mortgage because they know that they may get low interest rates. However, refinancing a mortgage is not always the best decision to take. The following are conditions in which mortgage refinancing may not be a good idea:
1. Long Break-even Period
Before people decide to refinance their mortgage, they have to calculate the break even period. To calculate the break even period, people need to know how much money they will have to spend on the new loan‘s closing costs. People can ask their lender to get the estimation, and use the number to do the break even period calculation. There is no standard of acceptable break even period. Everything depends on how long people plan to stay in the house, and how sure they are with their prediction.
2. Expensive Long-term Costs
Refinancing a mortgage can be a great way to lower the monthly payment. However, it may actually be more expensive in the long run. People who have been in a 30-year mortgage for a few years have paid a considerable amount of money for the interest, but they have not paid much of the principal. If they refinance with another 30-year mortgage, they can get lower interest, but they have to be paying it for another 30 years. In this case, the amount of money that people save from refinancing is actually insignificant compared to the amount of money that they will spend in the long run.
3. Having to Change to an ARM to Get Lower Rate
People who already have a low interest rate on their mortgage will need to refinance with an adjustable-rate mortgage if they want to benefit from substantial savings. The interest rates of adjustable-rate mortgages are the lowest in the industry. Because the interest rates are so low, many people decided to take an adjustable-rate mortgage to refinance their previous mortgage without even thinking. The problem with adjustable-rate mortgages is that the interest rates are currently low, but they may not be as low in the future. People who take an adjustable-rate mortgage may face higher monthly payments when the mortgage resets.
4. Expensive Closing Costs
When people refinance their mortgage, they have to pay some costs. The problem is that mortgage closing costs are not cheap. Usually, people have to pay thousands of dollars on closing costs. Some lenders provide the option to roll the closing costs into the loan, but of course, people will need to pay interest on it.
Most people find it difficult to decide whether to refinance their mortgage or not. Rather than doing something that they may regret for many years, people should get a professional opinion from a financial advisor, not from people who want to sell a mortgage to them.
Tuesday, August 23, 2011
The Best Solutions for “Underwater” Homeowners
Many homeowners are trapped in a difficult position. Their mortgage balance is more than the actual value of their home. This kind of problem may be the result of some events that people cannot control, such as a deteriorating neighborhood, falling real estate prices, etc. However, “underwater” homeowners may also be in their current condition because of their own fault, such as taking an adjustable rate mortgage, or borrowing more than what they can afford by taking an excessive equity loan. Being “underwater,” or also referred to being “upside down,” is not a comfortable position. But the problem is that it is not easy to escape it. The ideal way to solve this problem is to continue paying the mortgage. But people who want to start over need to take a drastic step. In many cases, “underwater” homeowners need to sell their home cheaply. The following are some options that might be the right solutions for homeowners who are “underwater.”
1. Short Selling the Home
If the difference between the amount of mortgage and the sale price of the home is small, short selling can be a good option. In short selling, the homeowner can use check to pay off the mortgage balance. However, if the homeowner must sell the property but cannot afford to pay off the mortgage balance, the holder of the mortgage must be contacted to arrange everything. Arranging a short sale with a lender is not an easy task. Homeowners who want to short sale their home often need to wait a long time and deal with lots of paperwork. After the lender agrees to do the short sale, the homeowner must find a real estate agent to handle the sale. However, after the short sale, there is a chance that the homeowner might end up owing money to the bank.
2. Foreclosure
When homeowners realize that the difference between the home’s sale price and the amount that the bank is willing to accept is too much, foreclose may be a better option. However, foreclosure is only to be taken when there are no other solutions available. Doing a short sale hurts people’s credit score, but a foreclosure is worse. People must remember that a bad credit score will affect many things in their life.
To avoid getting trapped in “underwater” position, people should choose to get a mortgage to buy a home that they can actually afford. People should also try to pay off their mortgage as quickly as they can. According to an expert, it is always a good idea to make a substantial amount of down payment when taking a mortgage, because by doing so, people can have enough home equity that keep them safe in case home values decline
1. Short Selling the Home
If the difference between the amount of mortgage and the sale price of the home is small, short selling can be a good option. In short selling, the homeowner can use check to pay off the mortgage balance. However, if the homeowner must sell the property but cannot afford to pay off the mortgage balance, the holder of the mortgage must be contacted to arrange everything. Arranging a short sale with a lender is not an easy task. Homeowners who want to short sale their home often need to wait a long time and deal with lots of paperwork. After the lender agrees to do the short sale, the homeowner must find a real estate agent to handle the sale. However, after the short sale, there is a chance that the homeowner might end up owing money to the bank.
2. Foreclosure
When homeowners realize that the difference between the home’s sale price and the amount that the bank is willing to accept is too much, foreclose may be a better option. However, foreclosure is only to be taken when there are no other solutions available. Doing a short sale hurts people’s credit score, but a foreclosure is worse. People must remember that a bad credit score will affect many things in their life.
To avoid getting trapped in “underwater” position, people should choose to get a mortgage to buy a home that they can actually afford. People should also try to pay off their mortgage as quickly as they can. According to an expert, it is always a good idea to make a substantial amount of down payment when taking a mortgage, because by doing so, people can have enough home equity that keep them safe in case home values decline
Improvement Loan Options
However, the first thing that you need to know about home improvement loans is that there is no such thing. This overused term actually describes any number of loans that can be put toward general home improvements. Here are a few of the most popular examples:
1) Home Equity Loan
A home equity loan is a loan where the borrower uses the equity in their home as collateral. The equity in your home is essentially the amount of your loan that you have paid off and therefore “own” in your home. These types of loans are also commonly referred to as “second mortgages” because they are taken out in addition to the first mortgage. Also, these types of loans are usually for a shorter duration of time than the primary mortgage. The loan comes in a lump payment to the borrower and is paid off in regular intervals at a fixed rate.
2) Home Equity Line of Credit
A home equity line of credit is similar to a home equity loan in that you borrow on the equity of your home. However, instead of getting the money as a lump sum, you get it in a revolving fashion much like a credit card. You qualify for a specific amount based on the equity you have in your home. You can take out amounts up to your limit, and as you pay the principle of the loan back, you can use it again—just like a credit card.
One advantage of this type of loan to the regular home equity loan is that you only end up borrowing exactly what you need. The negative side of both of these loans is that you are using your home as your collateral. If you default on the loan, you will likely lose your home. While many people use these loans for home improvements, they can also be used for college or other expenses.
3) Energy Efficient Mortgage
Sometimes, renovations aren’t just about fixing the aesthetics of a dated bathroom or kitchen. Sometimes, they are essential to the upkeep of the house and to lowering bills. Replace an aging, inefficient HVAC system and ductwork and you’ll save money on bills and have a more temperature-controlled home. An EEM is like a second mortgage that is ultimately rolled into your primary mortgage. For a new house, you can get it when you first get your mortgage. You can utilize this type of loan for an existing home by having it added on during a refinance. Any funds received are earmarked for specific renovations.
4) Cash-out Refinance.
A cash-out or cash-back mortgage refinance is when you refinance your home for more than the outstanding balance on your existing loan. This is usually a strategy used when a property has increased in value. For example, say you bought your house for $200,000 ten years ago and have paid off $90,000 of the loan and still owe $110,000. The house has doubled in value since you purchased it, so it’s now worth $400,000. You could do a cash-out refinance where you refinance for $250,000. You use the money to pay off the outstanding $110,000 loan and take the remaining $140,000 in cash for renovations.
If you are looking to make changes to your home but didn’t think you could afford it, look into a home improvement loan. I’ve tried to give you an overview of the most popular types of loans, but dig deeper and you likely find something that is even more closely tailored to your needs.
1) Home Equity Loan
A home equity loan is a loan where the borrower uses the equity in their home as collateral. The equity in your home is essentially the amount of your loan that you have paid off and therefore “own” in your home. These types of loans are also commonly referred to as “second mortgages” because they are taken out in addition to the first mortgage. Also, these types of loans are usually for a shorter duration of time than the primary mortgage. The loan comes in a lump payment to the borrower and is paid off in regular intervals at a fixed rate.
2) Home Equity Line of Credit
A home equity line of credit is similar to a home equity loan in that you borrow on the equity of your home. However, instead of getting the money as a lump sum, you get it in a revolving fashion much like a credit card. You qualify for a specific amount based on the equity you have in your home. You can take out amounts up to your limit, and as you pay the principle of the loan back, you can use it again—just like a credit card.
One advantage of this type of loan to the regular home equity loan is that you only end up borrowing exactly what you need. The negative side of both of these loans is that you are using your home as your collateral. If you default on the loan, you will likely lose your home. While many people use these loans for home improvements, they can also be used for college or other expenses.
3) Energy Efficient Mortgage
Sometimes, renovations aren’t just about fixing the aesthetics of a dated bathroom or kitchen. Sometimes, they are essential to the upkeep of the house and to lowering bills. Replace an aging, inefficient HVAC system and ductwork and you’ll save money on bills and have a more temperature-controlled home. An EEM is like a second mortgage that is ultimately rolled into your primary mortgage. For a new house, you can get it when you first get your mortgage. You can utilize this type of loan for an existing home by having it added on during a refinance. Any funds received are earmarked for specific renovations.
4) Cash-out Refinance.
A cash-out or cash-back mortgage refinance is when you refinance your home for more than the outstanding balance on your existing loan. This is usually a strategy used when a property has increased in value. For example, say you bought your house for $200,000 ten years ago and have paid off $90,000 of the loan and still owe $110,000. The house has doubled in value since you purchased it, so it’s now worth $400,000. You could do a cash-out refinance where you refinance for $250,000. You use the money to pay off the outstanding $110,000 loan and take the remaining $140,000 in cash for renovations.
If you are looking to make changes to your home but didn’t think you could afford it, look into a home improvement loan. I’ve tried to give you an overview of the most popular types of loans, but dig deeper and you likely find something that is even more closely tailored to your needs.
Home equity loans guide for dummies
Home equity loans – Popular and high demand is a good way to describe this loan type. You might have heard all about this loan before and you seem interested in getting a home equity loan, yet you dont really know much about it. Did you know you can get a bad credit debt consolidation home equity loan? that you can use your home equity loan to consolidate all your outstanding debt and at the same time better your credit score?
Yes, this is true, even if you have bad credit, you are still eligible to apply and be approved for a home equity loan. One great advantage is that you can now apply for home equity loans online without having to que up at the bank and face endless paperwork procedure. How convenient is that ?
Due to the high demand in home equity loans, thousands of home equity loan lenders have taken their service to a new dimension by now offering home equity loans online. These lenders also offers a large variety of different home equity loan options and packages.
Before you apply for a home equity loan, please make sure you know all about his loan to prevent yourself from unwanted surpsrises in the future. So what is there to know about these loans?
Before filling out a online application for home equity loans, make sure you read about the following:
- home equity loan rates – bad credit debt consolidation home equity loans – benefits of a home equity loan – home equity loan pros and cons – how and where to get these home equity loans – and much more
Would you like to read more? Maybe apply for a home equity loan? Compare rates? Use a calculator? Find local hme equity loan lenders?
THEN GO HERE !
With us you can find the best deals and lowest rate home equity loans online. Compare your given rates and decide which home equity loan lender offers you a great deal.
Also find free online home equity loan calculators to help you determine your home equity loan costs.
Yes, this is true, even if you have bad credit, you are still eligible to apply and be approved for a home equity loan. One great advantage is that you can now apply for home equity loans online without having to que up at the bank and face endless paperwork procedure. How convenient is that ?
Due to the high demand in home equity loans, thousands of home equity loan lenders have taken their service to a new dimension by now offering home equity loans online. These lenders also offers a large variety of different home equity loan options and packages.
Before you apply for a home equity loan, please make sure you know all about his loan to prevent yourself from unwanted surpsrises in the future. So what is there to know about these loans?
Before filling out a online application for home equity loans, make sure you read about the following:
- home equity loan rates – bad credit debt consolidation home equity loans – benefits of a home equity loan – home equity loan pros and cons – how and where to get these home equity loans – and much more
Would you like to read more? Maybe apply for a home equity loan? Compare rates? Use a calculator? Find local hme equity loan lenders?
THEN GO HERE !
With us you can find the best deals and lowest rate home equity loans online. Compare your given rates and decide which home equity loan lender offers you a great deal.
Also find free online home equity loan calculators to help you determine your home equity loan costs.
Best Home Equity Loans
It is first important to understand what the best home equity loans are. As the name suggests you will be putting your home up as collateral in exchange for the loan. This may sound a like a mortgage and in fact, the equity loan is a type of second mortgage but there are some key differences. A second mortgage is used to either alter the conditions of the original mortgage or to refinance it. The second mortgage is on a set schedule with a set amount that must be paid back. An equity loan on the other hand is based largely on your credit score which determines the amount of the loan you receive. Mortgages are based on the value of the home.
Instead an equity loan is based on your credit score. Like a mortgage you will be putting your house up as collateral which means that failure to repay the loan means the loss of your home. Another loan similar to a home equity loan is the Home equity line of credit or HELOC. The difference here is that the best home equity loans are available only once or twice while the HELOC is a revolving line of credit.
You must be very careful when deciding if you should take out such a loan. Small purchases or ones deemed unnecessary such as a plasma television or a vacation are not ideal reasons to take out the best home equity loans using your house as collateral. Instead, save this loan for something a bit more important like emergency surgery and college tuition.
Once you determine that the loan is justified given the need you must now find the loan. You will need to get a hold of an advisor which will help determine the amount you can borrow, remember it is based on your credit score. The advisor will also be able to help you establish a budget to see if you will be able to pay the loan back in the alloted amount of time. Once that it determined it is time to shop around and compare prices.
Loans can be very helpful in times of need. Never forget that a loan is something must be paid back often times with interest. Loans that use your property as collateral are very dangerous especially if you are not 100% sure that you can pay it back by the time agreed upon. This is especially true with home equity loans but it is possible to find a good loan suitable for your needs. While finding the best home equity loans might take some time to find it will be time worth spent.
Instead an equity loan is based on your credit score. Like a mortgage you will be putting your house up as collateral which means that failure to repay the loan means the loss of your home. Another loan similar to a home equity loan is the Home equity line of credit or HELOC. The difference here is that the best home equity loans are available only once or twice while the HELOC is a revolving line of credit.
You must be very careful when deciding if you should take out such a loan. Small purchases or ones deemed unnecessary such as a plasma television or a vacation are not ideal reasons to take out the best home equity loans using your house as collateral. Instead, save this loan for something a bit more important like emergency surgery and college tuition.
Once you determine that the loan is justified given the need you must now find the loan. You will need to get a hold of an advisor which will help determine the amount you can borrow, remember it is based on your credit score. The advisor will also be able to help you establish a budget to see if you will be able to pay the loan back in the alloted amount of time. Once that it determined it is time to shop around and compare prices.
Loans can be very helpful in times of need. Never forget that a loan is something must be paid back often times with interest. Loans that use your property as collateral are very dangerous especially if you are not 100% sure that you can pay it back by the time agreed upon. This is especially true with home equity loans but it is possible to find a good loan suitable for your needs. While finding the best home equity loans might take some time to find it will be time worth spent.
Improving the Chance of Getting Approved for a Mortgage
When you visit the websites of mortgage lending companies, you can see images of beautiful homes and smiling families. However, those are just images because getting approved for a mortgage is not something that every family can achieve. This is perfectly understandable because mortgage lending is a risky business and lenders will not give mortgages easily. They need to make sure that they are giving away mortgages to people who are able to make the payments without problems. If you want your mortgage application to be approved, you need to pass the lenders’ requirements for qualified borrowers. Each lender may have different requirements, but the following are a few things that you can do to improve your chance of getting approved for a mortgage:
1. Getting a Cosigner
You need to be realistic. If you don’t have enough income to qualify for a mortgage, you should find a cosigner who has enough disposable income to be considered toward the amount of your loan. If your credit score is not good, sometimes getting a cosigner can also compensate it. Getting a cosigner with enough disposable income will increase your chance of getting approved for a mortgage because the lender will have less risk.
When you get someone to be your cosigner you need to make sure that you both understand the legal and financial obligations of the deal. Your cosigner must understand that if somehow you default on your mortgage, he or she will have to take care of the debt. In such case, the cosigner will also have his or her credit score reduced. To avoid problems, before getting a cosigner you need to be sure that you will be able to pay your mortgage payments on time, and you have a well-secured source of income.
2. Waiting for the Perfect Time
Things are always changing. Sometimes the economic conditions make lenders stricter and getting a mortgage becomes harder. When you think that you are in that kind of climate, you should wait and apply for a mortgage when conditions have improved. However, that does not mean that you don’t have to do anything. While waiting for conditions to improve, you should try to improve your credit score by increasing your savings and reducing your debt.
3. Finding Cheaper Options
When you find that the amount of mortgage that you want is too hard to reach, you should consider looking for cheaper homes. You can search for alternatives in less attractive neighborhoods, or simply search for smaller homes. You don’t have to worry because in the future when your financial situation has improved, you can always trade up your old home and get your dream home in the neighborhood that you really want to live in.
1. Getting a Cosigner
You need to be realistic. If you don’t have enough income to qualify for a mortgage, you should find a cosigner who has enough disposable income to be considered toward the amount of your loan. If your credit score is not good, sometimes getting a cosigner can also compensate it. Getting a cosigner with enough disposable income will increase your chance of getting approved for a mortgage because the lender will have less risk.
When you get someone to be your cosigner you need to make sure that you both understand the legal and financial obligations of the deal. Your cosigner must understand that if somehow you default on your mortgage, he or she will have to take care of the debt. In such case, the cosigner will also have his or her credit score reduced. To avoid problems, before getting a cosigner you need to be sure that you will be able to pay your mortgage payments on time, and you have a well-secured source of income.
2. Waiting for the Perfect Time
Things are always changing. Sometimes the economic conditions make lenders stricter and getting a mortgage becomes harder. When you think that you are in that kind of climate, you should wait and apply for a mortgage when conditions have improved. However, that does not mean that you don’t have to do anything. While waiting for conditions to improve, you should try to improve your credit score by increasing your savings and reducing your debt.
3. Finding Cheaper Options
When you find that the amount of mortgage that you want is too hard to reach, you should consider looking for cheaper homes. You can search for alternatives in less attractive neighborhoods, or simply search for smaller homes. You don’t have to worry because in the future when your financial situation has improved, you can always trade up your old home and get your dream home in the neighborhood that you really want to live in.
Dealing with Mortgage Rejection
If you’re currently looking for a mortgage loan to buy your dream home, you must have already known that you need good strategies. Most mortgage-related websites suggest things like getting a cosigner, waiting for the perfect time to apply, and finding less expensive options. However, there are many other things that you can do to have your mortgage approved. So if you have tried all of the things mentioned earlier but you still unable to get a mortgage, you can try to do the following steps:
1. Asking for an Exception from the Lender
It may sound odd, but you can actually try to ask for an exception from the lender. When your mortgage loan application is rejected, you can ask the lender to reconsider it. You can ask to talk to someone else in the company to get a second opinion. However, you need a very good reason to ask for an exception. You also need a good credit history to be able to get an exception. You should write your reason in a carefully worded letter that focus only on the facts. Remember that you should avoid writing sob stories and excuses because those will not do any good. In most cases, asking for an exception works for people who are unable to get a mortgage because they had gone through terrible one-time events such as natural disaster, unexpected medical expense, or divorce.
2. Trying another Lender
When a lender turned your mortgage loan application down, you can always try another lender. Being rejected by one lender does not mean that any other lenders will also reject you. However, when you have tried to approach several lenders and all of them rejected your mortgage loan application for the same reason, you definitely need to do something about your current financial situation.
Even if none of the lenders that you approached approve your mortgage, you must avoid dealing with loan sharks. Mortgage loans are reasonable loans, but loans from loan sharks are not. Rather than getting a loan from loan shark, it is better for you to wait until your financial situation gets better.
3. Teaming Up with a Family Member or a Friend
If your income does not qualify for a mortgage loan, you can team up with a family member or a close friend. Teaming up to get a mortgage loan is similar, but different from getting a cosigner. When you team up with someone else to get a mortgage loan, both of you have the same responsibility towards it. Make sure that the person that you are going to team up with has more or at least the same amount of income so that you can have a better chance of getting approved.
1. Asking for an Exception from the Lender
It may sound odd, but you can actually try to ask for an exception from the lender. When your mortgage loan application is rejected, you can ask the lender to reconsider it. You can ask to talk to someone else in the company to get a second opinion. However, you need a very good reason to ask for an exception. You also need a good credit history to be able to get an exception. You should write your reason in a carefully worded letter that focus only on the facts. Remember that you should avoid writing sob stories and excuses because those will not do any good. In most cases, asking for an exception works for people who are unable to get a mortgage because they had gone through terrible one-time events such as natural disaster, unexpected medical expense, or divorce.
2. Trying another Lender
When a lender turned your mortgage loan application down, you can always try another lender. Being rejected by one lender does not mean that any other lenders will also reject you. However, when you have tried to approach several lenders and all of them rejected your mortgage loan application for the same reason, you definitely need to do something about your current financial situation.
Even if none of the lenders that you approached approve your mortgage, you must avoid dealing with loan sharks. Mortgage loans are reasonable loans, but loans from loan sharks are not. Rather than getting a loan from loan shark, it is better for you to wait until your financial situation gets better.
3. Teaming Up with a Family Member or a Friend
If your income does not qualify for a mortgage loan, you can team up with a family member or a close friend. Teaming up to get a mortgage loan is similar, but different from getting a cosigner. When you team up with someone else to get a mortgage loan, both of you have the same responsibility towards it. Make sure that the person that you are going to team up with has more or at least the same amount of income so that you can have a better chance of getting approved.
How to Find a Safe and Profitable Rental Property
Investing in rental property is one of the best ways to invest your money. You don’t have to worry if you don’t have enough money, because just like regular property, you can also get a mortgage for rental property. However, when you want to buy a rental property, you should prepare to do a lot of work and research. Investing in rental property is one of the toughest businesses, and there are many land mines that can ruin everything. If you bought the wrong rental property, your investment can turn into a nightmare.
Just like many other people who invest in property, you may want to get help from a real estate agent when you want to buy a rental property. However, it is better for you to do the rental property search by yourself. If you use an agent, you will face unnecessary pressure to buy because the agent wants you to buy the property that he or she has found for you. This can be a problem if it turns out that you don’t really like the property. But if you do the rental property search by yourself, you are free to decide whether to proceed or not. The following are 5 things that you should think about when you want to buy rental property for your investment:
1. Neighborhoods
The neighborhood is one of the most important things that you need to consider before you buy a property. The neighborhood quality will influence your rental property’s occupancy rate and the types of tenants that you will have. For example, if you buy a rental property near a university, most of your tenants will be students, so that your rental property may have lots of vacancies during summer.
2. Property Taxes
Property taxes differ from neighborhood to neighborhood. As an investor who wants to make money from renting property, you should know how much you will have to pay in taxes. To get more information about the tax in a certain neighborhood, you can ask homeowners in the community, or visit the town’s assessment office.
3. Schools
The availability of schools is often being a point of consideration for people who have children. They usually want to rent a place near a school with good quality. So when you want to buy a rental property, you may want to find one that is near a good school.
4. Crime rate
Make sure that the rental property that you are going to buy is not located in a neighborhood with high crime rate. Nobody wants to live in a place where there are lots of crimes. To see the accurate crime statistics of a neighborhood, you can visit the public library or the police station.
5. Jobs
You should try to find a rental property that is located in a neighborhood with growing employment opportunities. When you know that a big company is moving to a certain neighborhood, for example, you should buy a rental property there because you can be sure that the workers will flock there and they need to rent a place to live. However, when a big company moves to a neighborhood, usually the property prices are affected.
As you can see, there are so many things to check before you decide to buy a rental property. Checking those things may take much of your time, but doing so will enable you to find the safest and the most profitable property investment
Just like many other people who invest in property, you may want to get help from a real estate agent when you want to buy a rental property. However, it is better for you to do the rental property search by yourself. If you use an agent, you will face unnecessary pressure to buy because the agent wants you to buy the property that he or she has found for you. This can be a problem if it turns out that you don’t really like the property. But if you do the rental property search by yourself, you are free to decide whether to proceed or not. The following are 5 things that you should think about when you want to buy rental property for your investment:
1. Neighborhoods
The neighborhood is one of the most important things that you need to consider before you buy a property. The neighborhood quality will influence your rental property’s occupancy rate and the types of tenants that you will have. For example, if you buy a rental property near a university, most of your tenants will be students, so that your rental property may have lots of vacancies during summer.
2. Property Taxes
Property taxes differ from neighborhood to neighborhood. As an investor who wants to make money from renting property, you should know how much you will have to pay in taxes. To get more information about the tax in a certain neighborhood, you can ask homeowners in the community, or visit the town’s assessment office.
3. Schools
The availability of schools is often being a point of consideration for people who have children. They usually want to rent a place near a school with good quality. So when you want to buy a rental property, you may want to find one that is near a good school.
4. Crime rate
Make sure that the rental property that you are going to buy is not located in a neighborhood with high crime rate. Nobody wants to live in a place where there are lots of crimes. To see the accurate crime statistics of a neighborhood, you can visit the public library or the police station.
5. Jobs
You should try to find a rental property that is located in a neighborhood with growing employment opportunities. When you know that a big company is moving to a certain neighborhood, for example, you should buy a rental property there because you can be sure that the workers will flock there and they need to rent a place to live. However, when a big company moves to a neighborhood, usually the property prices are affected.
As you can see, there are so many things to check before you decide to buy a rental property. Checking those things may take much of your time, but doing so will enable you to find the safest and the most profitable property investment
Alternatives for People Who Can’t Get a Mortgage
Most homeowners are buying their home on a mortgage. However, getting approved for a mortgage is not an easy task. If you find yourself stuck because you need to buy a house but you can’t get a mortgage for it even though you can actually afford it, you can choose from several alternatives below:
1. Borrowing from Your Whole Life Insurance Policy
If you have a whole life insurance policy, you’re lucky because you can borrow money from it. As you make your regular insurance premium payments on regular basis, you accumulate cash value, and you earn both dividends and interest. You can borrow money against your accumulated cash value. Because the accumulated cash value is actually your own whole life insurance policy, you don’t even need to pass any loan qualifications. However, borrowing money from your whole life insurance policy reduces the face value of it if you don’t pay back.
Before you actually borrowed money from your whole life insurance policy, make sure that the benefits that you will get from buying a property is more than the drawbacks of cashing in your whole life insurance policy.
2. Get a Seller Financing
You can try to get a seller financing to buy a home. When you get a seller financing, you don’t have to deal with the bank. You just need to make your payments directly to the person who sold the house to you. However, getting a seller financing is not easy because most homeowners do not own their house free and clear. People who do own their home free and clear mostly don’t want to become lenders because they don’t want to deal with the risks.
3. Getting a Rent to Own or Lease Option
With rent to own or lease option, you can rent a property for a certain length of term, and at the end of the term, you will have the option to buy it. The drawback of rent to own or lease option is that the rent payments are usually a bit higher than market price.
These alternatives are great options if you need to buy a home but you can’t get a mortgage. However, they have their own potential problems that you need to be aware of. Make sure that you know all the risks before you take one of them. It is a good idea to consult a financial advisor before you make any decision.
1. Borrowing from Your Whole Life Insurance Policy
If you have a whole life insurance policy, you’re lucky because you can borrow money from it. As you make your regular insurance premium payments on regular basis, you accumulate cash value, and you earn both dividends and interest. You can borrow money against your accumulated cash value. Because the accumulated cash value is actually your own whole life insurance policy, you don’t even need to pass any loan qualifications. However, borrowing money from your whole life insurance policy reduces the face value of it if you don’t pay back.
Before you actually borrowed money from your whole life insurance policy, make sure that the benefits that you will get from buying a property is more than the drawbacks of cashing in your whole life insurance policy.
2. Get a Seller Financing
You can try to get a seller financing to buy a home. When you get a seller financing, you don’t have to deal with the bank. You just need to make your payments directly to the person who sold the house to you. However, getting a seller financing is not easy because most homeowners do not own their house free and clear. People who do own their home free and clear mostly don’t want to become lenders because they don’t want to deal with the risks.
3. Getting a Rent to Own or Lease Option
With rent to own or lease option, you can rent a property for a certain length of term, and at the end of the term, you will have the option to buy it. The drawback of rent to own or lease option is that the rent payments are usually a bit higher than market price.
These alternatives are great options if you need to buy a home but you can’t get a mortgage. However, they have their own potential problems that you need to be aware of. Make sure that you know all the risks before you take one of them. It is a good idea to consult a financial advisor before you make any decision.
Mortgage Options for Self-employed
People’s employment status affects their chance of getting a mortgage. But what about people that are self-employed? People that are self-employed are still eligible for a mortgage. However, getting a mortgage is usually a bit harder and more expensive for them. Most lenders are worried to see the fact that they don’t earn steady income like employees to make their monthly mortgage payments. Some lenders even simply refuse to give loan to people that are self-employed because of the extra risk and paperwork involved in the whole process. But if you are a self-employed, you must not let these facts discourage you from trying to get a mortgage. There are lenders that provide mortgage products that are suitable for people who are self-employed.
First, you have to understand that lenders are not seeing people that are self-employed as their ideal borrowers. If you manage to get a mortgage, you will definitely have to pay higher interest rates compared to people that are employees. The rates that you see when you visit the websites of lenders are rates for prime borrowers, and those are not the ones that you will be paying because you don’t have steady income like them. Because you are a less attractive candidate for lenders, you may not be able to get a lot of options and negotiate to get a lower interest rate. You will also need to put up some extra effort to find lenders who are willing to provide loan for people who are self-employed like you. One more thing that you need to prepare when you want to apply for a mortgage as a self-employed is a larger down payment.
The subprime mortgage crisis made it even harder for people who are self-employed to get a mortgage because banks are trying to avoid risky investments. However, you can still get one of the following loan types:
1. SISA (Stated Income/Stated Asset Mortgage)
In this type of mortgage, you can tell the bank how much your income is, and the bank will not do anything to verify it. However, the bank will check your sources of income. Usually, you will need to provide a list of your recent customers or clients and your other sources of cash flow. You may also list your income-producing investment if you have one.
2. No Documentation Loan
If you are a self-employed but your tax returns show that your business has a very low profit or even loss, this type of loan may be a good option. In No Documentation Loan, the lender will not verify your income information that you provide. However, because this kind of loan is considered high-risk by the bank, you need to prepare to pay higher interest rate compared to other types of loans with full documentation.
If you can’t get any of the options mentioned earlier, you can try to get a joint mortgage with a trusted friend or relative who is an employee. Getting a joint mortgage is easier than getting a SISA or No Documentation Loan because it is safer to the lender.
First, you have to understand that lenders are not seeing people that are self-employed as their ideal borrowers. If you manage to get a mortgage, you will definitely have to pay higher interest rates compared to people that are employees. The rates that you see when you visit the websites of lenders are rates for prime borrowers, and those are not the ones that you will be paying because you don’t have steady income like them. Because you are a less attractive candidate for lenders, you may not be able to get a lot of options and negotiate to get a lower interest rate. You will also need to put up some extra effort to find lenders who are willing to provide loan for people who are self-employed like you. One more thing that you need to prepare when you want to apply for a mortgage as a self-employed is a larger down payment.
The subprime mortgage crisis made it even harder for people who are self-employed to get a mortgage because banks are trying to avoid risky investments. However, you can still get one of the following loan types:
1. SISA (Stated Income/Stated Asset Mortgage)
In this type of mortgage, you can tell the bank how much your income is, and the bank will not do anything to verify it. However, the bank will check your sources of income. Usually, you will need to provide a list of your recent customers or clients and your other sources of cash flow. You may also list your income-producing investment if you have one.
2. No Documentation Loan
If you are a self-employed but your tax returns show that your business has a very low profit or even loss, this type of loan may be a good option. In No Documentation Loan, the lender will not verify your income information that you provide. However, because this kind of loan is considered high-risk by the bank, you need to prepare to pay higher interest rate compared to other types of loans with full documentation.
If you can’t get any of the options mentioned earlier, you can try to get a joint mortgage with a trusted friend or relative who is an employee. Getting a joint mortgage is easier than getting a SISA or No Documentation Loan because it is safer to the lender.
Buying vs. Renting a Home
In general, people who are looking for a place to live have two options. They can rent or buy a place to live. To decide which option to take, people need to consider the financial and personal or emotional aspects. The following are the financial factors as well as the pros and cons of owning a home:
Examining Financial Conditions
The first thing that people need to do when they want to decide whether to buy or rent a home is to determine whether they can actually afford to buy a home. Some of the things they need to consider are their ability to prepare money for the down payment, which is usually between 5% and 20% of the property price, and the closing costs of the mortgage that is usually about 5%. In most cases, the initial costs of buying a home through a mortgage are substantially higher than the costs of renting one. Another thing to consider is the fact that when people manage to cover all the initial expenses for buying a home with a mortgage, they have only gone through half of the battle.
Getting approved for a mortgage and pay all the initial costs are not the only things that people need to think about. They also need to calculate the costs that they will have to pay to stay in their future home. According to some financial experts, the ideal monthly mortgage payment should not be more than 28% of people’s gross monthly income. To be financially safe, people’s total monthly debt payments should not be more than 36% of their gross monthly income. People who crossed these suggested limits may run into trouble because they still have many other things to pay. In the other hand, people who rent a home instead of buying one will find it easier to manage their expenses because they only have to pay fixed monthly expenditure. Even if something needs to be repaired, that will be the landlord’s problem.
Some of the solid reasons to buy a home instead of renting one are the ability to build equity, and the investment value of a home. However, there are downsides of these reasons. For example, nobody can guarantee that a home can be a good investment. We have to admit that history shows that home values tend to increase over time. But there are also some areas where home values have significantly decreased.
Examining Financial Conditions
The first thing that people need to do when they want to decide whether to buy or rent a home is to determine whether they can actually afford to buy a home. Some of the things they need to consider are their ability to prepare money for the down payment, which is usually between 5% and 20% of the property price, and the closing costs of the mortgage that is usually about 5%. In most cases, the initial costs of buying a home through a mortgage are substantially higher than the costs of renting one. Another thing to consider is the fact that when people manage to cover all the initial expenses for buying a home with a mortgage, they have only gone through half of the battle.
Getting approved for a mortgage and pay all the initial costs are not the only things that people need to think about. They also need to calculate the costs that they will have to pay to stay in their future home. According to some financial experts, the ideal monthly mortgage payment should not be more than 28% of people’s gross monthly income. To be financially safe, people’s total monthly debt payments should not be more than 36% of their gross monthly income. People who crossed these suggested limits may run into trouble because they still have many other things to pay. In the other hand, people who rent a home instead of buying one will find it easier to manage their expenses because they only have to pay fixed monthly expenditure. Even if something needs to be repaired, that will be the landlord’s problem.
Some of the solid reasons to buy a home instead of renting one are the ability to build equity, and the investment value of a home. However, there are downsides of these reasons. For example, nobody can guarantee that a home can be a good investment. We have to admit that history shows that home values tend to increase over time. But there are also some areas where home values have significantly decreased.
Knowing the Most Common Mortgage Frauds
We have to admit that there are a lot of ethical violations and even criminal activities in banking, financial, and housing industry. This article will discuss about frauds in the mortgage industry, to help people to avoid them. Mortgage fraud is not only unfair practices that may be done by mortgage industry professionals, but also the ones that may be done by the borrowers. There are many reasons why borrowers and industry professionals do mortgage fraud, but we can group them into two types – fraud for housing and fraud for profit.
Mortgage fraud for housing is unfair practices done by borrowers, in which they provide false details about their employment, income, and other things that may influence their ability to be approved for a mortgage. The goal is of course to get or maintain property ownership. This kind of fraud is not only being done by people who need a place to live, but also by investors who intend to turn the property into a source of income by renting or re-selling it.
Mortgage fraud for profit is done by industry professionals. Usually this kind of fraud is done by providing false details about their clients or their own condition in order to maximize profit on a mortgage loan transaction. Mortgage industry professionals that may commit such fraud include real estate sales agent, real estate appraiser, real estate builder, loan officer, credit or debt counselor, mortgage broker, insurance agent, property inspector, title company, escrow agent, and attorney. Sometimes mortgage industry professionals commit fraud together as a network to maximize the fees and share profits on all of their services.
Common Fraud Schemes and Scams in Mortgage
The most common mortgage fraud schemes that are being done by investors are occupancy fraud, property flipping, and the straw buyer scam. In general, property flipping is not illegal. However, it became unfair when a property is purchased below market price with help from a corrupt real estate appraiser and then being sold at profit. Occupancy fraud is being done by investors by claiming that the home will be owner-occupied. This will allow them to gain favorable bank status even though the property will actually be vacant. Occupancy fraud also allows them to get lower mortgage rates. The straw buyer fraud is being done by investors in which they use their identity credit and other information to obtain mortgage for a buyer who may not qualify for a mortgage.
Mortgage fraud for housing is unfair practices done by borrowers, in which they provide false details about their employment, income, and other things that may influence their ability to be approved for a mortgage. The goal is of course to get or maintain property ownership. This kind of fraud is not only being done by people who need a place to live, but also by investors who intend to turn the property into a source of income by renting or re-selling it.
Mortgage fraud for profit is done by industry professionals. Usually this kind of fraud is done by providing false details about their clients or their own condition in order to maximize profit on a mortgage loan transaction. Mortgage industry professionals that may commit such fraud include real estate sales agent, real estate appraiser, real estate builder, loan officer, credit or debt counselor, mortgage broker, insurance agent, property inspector, title company, escrow agent, and attorney. Sometimes mortgage industry professionals commit fraud together as a network to maximize the fees and share profits on all of their services.
Common Fraud Schemes and Scams in Mortgage
The most common mortgage fraud schemes that are being done by investors are occupancy fraud, property flipping, and the straw buyer scam. In general, property flipping is not illegal. However, it became unfair when a property is purchased below market price with help from a corrupt real estate appraiser and then being sold at profit. Occupancy fraud is being done by investors by claiming that the home will be owner-occupied. This will allow them to gain favorable bank status even though the property will actually be vacant. Occupancy fraud also allows them to get lower mortgage rates. The straw buyer fraud is being done by investors in which they use their identity credit and other information to obtain mortgage for a buyer who may not qualify for a mortgage.
Avoiding Classic Mistakes in Buying Property for Investment
Investing in real estate has become harder than it used to be. The real estate market is slowing down, and making money from buying and selling properties will not be an easy task. However, you can still make money from investing in real estate if you are doing everything carefully and avoid the following classic mistakes that many investors do:
1. Buying Without Doing Enough Research
When people buy things like a television or a car, they usually ask a lot of questions and compare different models to get the best deals. But when you are going to buy a property for investment, you have to do your research more thoroughly. You have to ask a lot of questions not only about the property, but also about the neighborhood because it may have a great impact to the property price.
Some of the things that you need to check before you buy a property are:
- The reasons why the homeowner is selling the property
- At what price the homeowner bought the property and when did he or she bought it
- The location of the home, whether it is located in flood zone or other areas with potential problems
- The permit and whether it has issues to take care of
- What needs to be replaced or repaired in the house
2. Choosing the Wrong Financing Option
If you plan to buy a property on a mortgage, you need to make sure that you choose the right type of financing. If you choose mortgage loans with adjustable/variable rates, you have to be sure that you will be able to pay your mortgage payments in case the interest rates go up. However, it is better for you to choose a conventional mortgage with fixed rate.
3. Doing Everything without Help from Anyone Else
Many real estate investors and first time home buyers do the same mistake. They do everything on their own because they think that they know everything. If you want to have a safe and profitable real estate investment, you should find every possible resource and ask people that are expert in the industry. You can ask a competent home inspector, an expert real estate agent, an insurance representative, or maybe even a handyman. These people will provide you with some information about the home and neighborhood.
4. Paying Too Much for a Property
This issue is closely related to the lack of research before purchasing. If you don’t do enough research, you may end up paying too much for a property. To avoid overpaying for a property, you have to search for information about similar homes that are recently sold in the area and find out how much they were sold for.
1. Buying Without Doing Enough Research
When people buy things like a television or a car, they usually ask a lot of questions and compare different models to get the best deals. But when you are going to buy a property for investment, you have to do your research more thoroughly. You have to ask a lot of questions not only about the property, but also about the neighborhood because it may have a great impact to the property price.
Some of the things that you need to check before you buy a property are:
- The reasons why the homeowner is selling the property
- At what price the homeowner bought the property and when did he or she bought it
- The location of the home, whether it is located in flood zone or other areas with potential problems
- The permit and whether it has issues to take care of
- What needs to be replaced or repaired in the house
2. Choosing the Wrong Financing Option
If you plan to buy a property on a mortgage, you need to make sure that you choose the right type of financing. If you choose mortgage loans with adjustable/variable rates, you have to be sure that you will be able to pay your mortgage payments in case the interest rates go up. However, it is better for you to choose a conventional mortgage with fixed rate.
3. Doing Everything without Help from Anyone Else
Many real estate investors and first time home buyers do the same mistake. They do everything on their own because they think that they know everything. If you want to have a safe and profitable real estate investment, you should find every possible resource and ask people that are expert in the industry. You can ask a competent home inspector, an expert real estate agent, an insurance representative, or maybe even a handyman. These people will provide you with some information about the home and neighborhood.
4. Paying Too Much for a Property
This issue is closely related to the lack of research before purchasing. If you don’t do enough research, you may end up paying too much for a property. To avoid overpaying for a property, you have to search for information about similar homes that are recently sold in the area and find out how much they were sold for.
Avoiding Excessive Mortgage Closing Costs
Buying a home is something that most people don’t do too often. Usually people are only involved in real estate transactions once or maybe twice in a lifetime, so that most of them are not familiar with the whole process. In real estate transactions, there are mountains of papers to sign with plenty of unfamiliar terms. People also need to deal with mortgage brokers, real estate agents, and others, who just want to get everything done quickly so that they can get paid. They just smile and tell home buyers where to sign without explaining everything in detail. People who have never been involved in real estate transactions before can easily lose track of what they are paying for. The boredom from signing mountains of papers makes it even easier for them to lose track of how much they are spending on everything.
The mortgage is not the only thing that people need to pay. There are also lots of other expenses that are categorized as mortgage “closing costs.” Homebuyers should pay a close attention to everything that is included in the closing costs because by doing so, they may be able to save a lot of money. Closing costs are actually the sum of all potential costs that occur during the process of purchasing real estate through mortgage. Closing costs can be grouped into two categories as recurring and non-recurring.
Recurring costs are paid not only at the closing of the mortgage, but also on monthly basis for the life of the loan. Recurring costs include real estate taxes, homeowners insurance, and private mortgage insurance (for homebuyers with less than 20% down payment). All these costs must first be paid in advance at the mortgage closing, so that the funds will be readily available to cover the following year’s obligations. In some cases, homeowners also have to prepay interest to cover their first few days or weeks.
Non-recurring costs are also paid at the mortgage‘s closing. Non-recurring costs may include application fee, a series of loan fees, a broker’s service fee (for homeowners who use the service of a mortgage broker), home appraisal fees, Federal Housing Administration fees, and more. There is no way that homebuyers can completely avoid unnecessary mortgage fees. But to minimize them, homebuyers can look out for excessive fees that are charged for things like application fee, underwriting fee, mortgage rate lock fee, loan processing fee, and broker rebate. Some lenders realize that homebuyers are overwhelmed by the mortgage closing fees, and they are offering what is called “all-in-one” flat-rate fees with all closing costs included.
In general, the amount of mortgage closing costs that homeowners have to pay is from 3 to 5 percent of the property price. To see the closing costs in detail, homeowners have the right to see the HUD-1 document 24 hours before the mortgage‘s closing.
The mortgage is not the only thing that people need to pay. There are also lots of other expenses that are categorized as mortgage “closing costs.” Homebuyers should pay a close attention to everything that is included in the closing costs because by doing so, they may be able to save a lot of money. Closing costs are actually the sum of all potential costs that occur during the process of purchasing real estate through mortgage. Closing costs can be grouped into two categories as recurring and non-recurring.
Recurring costs are paid not only at the closing of the mortgage, but also on monthly basis for the life of the loan. Recurring costs include real estate taxes, homeowners insurance, and private mortgage insurance (for homebuyers with less than 20% down payment). All these costs must first be paid in advance at the mortgage closing, so that the funds will be readily available to cover the following year’s obligations. In some cases, homeowners also have to prepay interest to cover their first few days or weeks.
Non-recurring costs are also paid at the mortgage‘s closing. Non-recurring costs may include application fee, a series of loan fees, a broker’s service fee (for homeowners who use the service of a mortgage broker), home appraisal fees, Federal Housing Administration fees, and more. There is no way that homebuyers can completely avoid unnecessary mortgage fees. But to minimize them, homebuyers can look out for excessive fees that are charged for things like application fee, underwriting fee, mortgage rate lock fee, loan processing fee, and broker rebate. Some lenders realize that homebuyers are overwhelmed by the mortgage closing fees, and they are offering what is called “all-in-one” flat-rate fees with all closing costs included.
In general, the amount of mortgage closing costs that homeowners have to pay is from 3 to 5 percent of the property price. To see the closing costs in detail, homeowners have the right to see the HUD-1 document 24 hours before the mortgage‘s closing.
What is an Impound Account?
Most people dream of having their own home. To buy their own home, they usually get a mortgage loan. However, owning a home with a mortgage does not necessarily mean that people will get their deposit back for good. When people buy a home with a mortgage loan, but they only put a down payment of less than 20 percent of the home value, they may have to make an additional deposit to what is called the “impound account,” also known as escrow account. Technically, the account is not part of the mortgage. The account will be maintained by the mortgage lender to pay for various insurance and taxes. The costs of each type of insurance are divided into a monthly amount and the mortgage lender will add them to the borrower’s mortgage payment.
Impound account is required for borrowers with low down payment because mortgage lenders consider them as borrowers with higher risk. Mortgage lenders consider an impound account as an additional level of assurance that the state government will not take the property for property taxes problems. An impound account also ensures mortgage lenders that the homeowner has adequate home insurance so that in case the property is damaged, everything will be covered by the insurance company. With an impound account, the mortgage lender will become the owner of the property if the borrower default on his or her mortgage loan.
Some people would rather set aside some money themselves, so that they can save it in a saving account with high interest. In some states, mortgage lenders are not required to pay interest on the borrowers’ money that is held in impound accounts, so that it became a profitable asset to them. Borrowers that are required to deposit some money to an impound account can monitor their impound account balance from their monthly mortgage statement. To ensure that borrowers are being treated fairly, federal regulations require mortgage lenders to review impound accounts annually. If the amount of money in an impound account is too little, the mortgage lender will ask more money to the borrower. But if an impound account accumulates too much money, the excess funds must be returned to the borrower.
Impound account is required for borrowers with low down payment because mortgage lenders consider them as borrowers with higher risk. Mortgage lenders consider an impound account as an additional level of assurance that the state government will not take the property for property taxes problems. An impound account also ensures mortgage lenders that the homeowner has adequate home insurance so that in case the property is damaged, everything will be covered by the insurance company. With an impound account, the mortgage lender will become the owner of the property if the borrower default on his or her mortgage loan.
Some people would rather set aside some money themselves, so that they can save it in a saving account with high interest. In some states, mortgage lenders are not required to pay interest on the borrowers’ money that is held in impound accounts, so that it became a profitable asset to them. Borrowers that are required to deposit some money to an impound account can monitor their impound account balance from their monthly mortgage statement. To ensure that borrowers are being treated fairly, federal regulations require mortgage lenders to review impound accounts annually. If the amount of money in an impound account is too little, the mortgage lender will ask more money to the borrower. But if an impound account accumulates too much money, the excess funds must be returned to the borrower.
E-LOAN
About E-LOAN
E-LOAN is a nationwide financial services company that is dedicated to providing consumers with a simple, easy and open way to obtain high yield savings accounts and CDs. Our web site also provides access to several preferred, nationally recognized lending partners that may be able to assist you in obtaining a loan that meets your financial needs. Since its launch in 1997, E-LOAN has drawn upon its pro consumer values to deliver our customers the best online experience possible.
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Home Equity Loans
Home equity loans allow a homeowner to borrow money by pledging the house as collateral. Borrowers who want to borrow a relatively large amount of money or who don’t have good credit often find the home equity loan to be attractive.
How Collateral Works
A home equity loan is a type of second mortgage, not to be confused with a home equity line of credit.
Lenders may be more liberal because they view home equity loans as relatively safe. You can’t disappear with your house or hide it if you default on your loan, so the lender has a good chance of collecting the collateral. Also, you are likely to make your payments a priority if your home is on the line.
Advantages of Home Equity Loans
Home equity loans are attractive to borrowers for a few main reasons:
They typically have a lower interest rate (or APR)
They are easier to qualify for if you have bad credit
Payments on a home equity loan may be tax deductible
Borrowers can get relatively large loans with this type of loan
Common Home Equity Loan Uses
Borrowers use home equity loans for some of life’s larger expenses, because homes tend to have a lot of value to borrow against. For example, you find that a lot of borrowers want to
Remodel or renovate the house
Pay for a family member’s college education
Finance the purchase of a second home
Consolidate high-interest debts
Pitfalls of Home Equity Loans
Before using a home equity loan for any purpose, you should be aware of the pitfalls of these loans. The main thing is that you can lose your home if you fail to meet the payment schedule required by the loan.
Another common pitfall of home equity loans is that scammers have found plenty of ways to cheat homeowners out of their most valuable asset. Be sure that you know who you’re doing business with. If something smells fishy (like a high-pressure sales pitch or an inability to put things in writing), then take a step back and make sure the deal is legitimate.
How to Find the Best Home Equity Loans
Finding the best home equity loan can save you thousands of dollars – at least. In order to get the best loan, I recommend that you:
Shop around. Try a variety of sources (banks, brokers, and credit unions)
Manage your credit score and make sure your credit reports are accurate
Ask your network of friends and family who they recommend
Compare your offers to those found on websites and advertisements
Additional Home Equity Loan Tips
To make the deal work out in your best interest, make sure that it is the right deal in the first place. Is a home equity loan a better fit for your needs than a simple credit card account? If you’re not sure, figure it out before you put your home at risk.
Plan out your budget ahead of time. Make sure that taking the loan will not overburden you.
Review and consider insurance to cover the payments if something happens. You may or may not need insurance. If you’re going to include it in your program, try to pay the premiums monthly – not up front.
How Collateral Works
A home equity loan is a type of second mortgage, not to be confused with a home equity line of credit.
Lenders may be more liberal because they view home equity loans as relatively safe. You can’t disappear with your house or hide it if you default on your loan, so the lender has a good chance of collecting the collateral. Also, you are likely to make your payments a priority if your home is on the line.
Advantages of Home Equity Loans
Home equity loans are attractive to borrowers for a few main reasons:
They typically have a lower interest rate (or APR)
They are easier to qualify for if you have bad credit
Payments on a home equity loan may be tax deductible
Borrowers can get relatively large loans with this type of loan
Common Home Equity Loan Uses
Borrowers use home equity loans for some of life’s larger expenses, because homes tend to have a lot of value to borrow against. For example, you find that a lot of borrowers want to
Remodel or renovate the house
Pay for a family member’s college education
Finance the purchase of a second home
Consolidate high-interest debts
Pitfalls of Home Equity Loans
Before using a home equity loan for any purpose, you should be aware of the pitfalls of these loans. The main thing is that you can lose your home if you fail to meet the payment schedule required by the loan.
Another common pitfall of home equity loans is that scammers have found plenty of ways to cheat homeowners out of their most valuable asset. Be sure that you know who you’re doing business with. If something smells fishy (like a high-pressure sales pitch or an inability to put things in writing), then take a step back and make sure the deal is legitimate.
How to Find the Best Home Equity Loans
Finding the best home equity loan can save you thousands of dollars – at least. In order to get the best loan, I recommend that you:
Shop around. Try a variety of sources (banks, brokers, and credit unions)
Manage your credit score and make sure your credit reports are accurate
Ask your network of friends and family who they recommend
Compare your offers to those found on websites and advertisements
Additional Home Equity Loan Tips
To make the deal work out in your best interest, make sure that it is the right deal in the first place. Is a home equity loan a better fit for your needs than a simple credit card account? If you’re not sure, figure it out before you put your home at risk.
Plan out your budget ahead of time. Make sure that taking the loan will not overburden you.
Review and consider insurance to cover the payments if something happens. You may or may not need insurance. If you’re going to include it in your program, try to pay the premiums monthly – not up front.
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