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Finding a No Closing Cost Home Equity Loan
One of the biggest advantages to a home equity loan is the low costs that are associated with them. With first mortgages, closing costs can often add up to quite a large expense. On the other hand, with an equity loan, you can find options that offer absolutely no closing costs to you. This will make your home equity loan fast and easy and, most importantly, cheap. After all, most people who want to take out a home equity loan are not looking to spend more money; they are looking to get money.
To find a no closing cost home equity loan consult with several mortgage lenders. There will be many that will offer a no closing cost option, but they will each have different rates and terms to offer. Once you have found a no closing cost option, it is up to you to choose the right rate and other options for you.
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Investing Your Home Equity Loan Wisely
One of the biggest reasons that people take out a home equity loan is to use the funds for other investment opportunities besides their home. This is a smart way to make your money work for you, if you invest wisely. If you are thinking of investing the proceeds from your home equity loan, here are a few tips to ensure that you are making the correct choice. When choosing where to invest your home equity loan, make sure that you weigh the risks involved.
One thing about a home, it is a very steady investment. So, if you are thinking of moving your money to another investment means, you should take a close look at the risk/reward scenarios that come with it. In addition to weighing the risk, also take into account the fact that you will need to repay your home equity loan at the same time the money is invested. Granted, repayment of a home equity loan can be drawn out over several decades if necessary. However, most people find that they do not have that kind of time.
Be sure that your investment of the funds does not impede your ability to promptly pay back the home equity loan. There are many other factors that should come into play when you decide to re-invest your home equity through a home equity loan. Consult with an investment adviser for more answers regarding the choices in front of you.
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Retirement Planning with a Home Equity Line of Credit
For those that are worried about their future today, there are ways that you can take advantage of money you have now to invest it in your future retirement. One of the greatest resources for these types of funds is in home equity. If you have owned your home for some time and it has appreciated as most do over time, you could probably set up a solid retirement plan using only the funds from a home equity line of credit.
A home equity line of credit is a fast, easy, low cost way to get a large amount of money for any reason. Most advisers would tell you that a home equity line of credit should only be used to consolidate other debts or to re-invest. Retirement is one of the best ways for you to re-invest this capital.
If you are wondering what the best form of retirement planning would be for you, there are many financial advisers who would love to discuss your options with you. Most of them can help you draw out your home equity line of credit and re-invest it immediately. It can be so seamless that you almost never can tell that the money was moved. Speak with a financial adviser about the possible retirement planning options that you could take advantage of with you home equity line of credit. Money only works when it is working for you and there are always ways to make it work better and faster.
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Consolidating Your First and Second Mortgages
For various reasons, many people end up carrying a first and second mortgage on their home. Thanks to the growing home market, these same people are finding that they have established enough total equity to refinance and consolidate their two mortgages into a single, fixed loan. This makes the best sense in all aspects.
Short term and long term, consolidating a first and second mortgage is a smart move. To find out about consolidating your first and second mortgage, check out lending resources on the web and in your local neighborhood. You will find a wide variety of options for your consolidation and in the end, the scenario you choose will be based on your particular situation. Just be sure that you get quotes from different places before settling on a loan. You can never know if you are getting the best quote if you only get one.
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Shopping for Equity Loans Online
Equity loans are more popular than ever in light of the low interest rates that are available. If you are interested in finding an equity loan for your home, look to the Web for the biggest selection of mortgage rates, terms, and lenders available. There are more mortgage websites than could be listed in one place, but here are a few ways to find ones on your own.
First, you can visit our sponsors. We feature websites that are known for their commitment to providing the best in mortgages and equity loans to the public. Contact them for more information on how they can help with your specific situation and mortgage scenario.
You can also use Internet directories such as the Open Directory project to find large amounts of websites specializing in equity loans and mortgages. These directories give you links to the websites and short descriptions of what they can offer to you.
There are many other places such as search engines where you can look for equity loans and rate quotes. Take some time to use the Internet and you will open lending doors that you may have never known were available otherwise.
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Renovate Your House with a Home Equity Loan
Here are some suggestions for using your home equity loan:
* Expand or renovate your house.
* Finance your child's education.
* Consolidate debts into one payment, at a lower interest rate.
These are great benefits for American consumers. But before deciding on home equity loans, be an informed consumer as well. The big risk of taking out an equity loan is losing your house, if you get way over your head with debt and fail to meet your monthly payments. A second mortgage, or equity loan, is for big-ticket items that are an investment, not for frivolous spending and purchases you can do without.
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Seek Help with Big Concerns About Your Equity Loan
If you have big concerns about the terms of your equity loan, or you feel you were taken advantage of, there may be recourse. But you have to ask for help. Here's what to do:
* Ask your state bar association to refer you to a low-cost legal agency or lawyers that offer free consultations.
* Call your state Attorney General's office, and speak to someone in the consumer protection division.
* Most every community has fair housing advocates or affordable counseling agencies. Contact them and ask for help.
* Read the federal government's web site for consumers at www.consumer.gov
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Home Improvements? Take a Second Mortgage
If you are looking to add some improvements to your home and are wondering where you can find the money, the answer is all around you. If you have been in your home for a while or if you live in an area where homes have been appreciating, you probably have built up some home equity. This home equity can be drawn out through a second mortgage and can be put right back into your home through home improvements.
Second mortgages are something that scare a lot of people. There is really nothing to be afraid of. A second mortgage does not mean that you have more money invested in your home than it is worth, if you are careful. Most people who take on a second mortgage do it without ever using the funds. Rather, the funds available from the second mortgage rest where they are for that rainy day that may come along.
If you are looking to boost the value of your home through improvements, talk with a mortgage specialist about the possibility of a second mortgage. You can take advantage of extremely low second mortgage rates and fix up your home without having to come out of pocket.
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Shop Around for the Best Home Equity Loan
It pays to shop around for the best home equity loan. Costs and terms differ, so you can save hundreds or thousands of dollars if you do some research first. Here are some tips:
* Contact several lenders, including banks, credit unions and mortgage brokers.
* Get a copy of your credit report and review it before your lender does. Is the information accurate? Are credit problems shown that you have corrected? If so, contact the credit reporting bureau to dispute the report.
* Go online and compare offers. There are hundreds of resources on the web for home equity loans.
* Finally, make sure an equity loan is the best option for you. Questions to ask yourself: Do your purchases demand a big lump sum like an equity loan? Will you be able to keep up with the monthly payments on the equity loan?
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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Beware of High-Cost Lenders Offering Equity Loans
The FDIC warns consumers about predatory lenders who may victimize consumers seeking home equity loans. High-cost lenders can sink homeowners more deeply into debt. At risk is your home and security. The lenders can foreclose on your home if you fail to make your payments.
So-called predatory lenders are known for zeroing in on people with credit problems or on low incomes. These lenders may fail to explain fully the terms of the equity loans they offer. Homeowners may wind up with high-cost equity loans they cannot afford to repay. Here are things you can do to avoid problems:
* Talk to several lenders.
* Research the costs and rates for equity loans.
* Learn your legal rights.
* If you have a lot of debt and see an equity loan as the answer, check with your creditors first. Maybe they can put you on a payment plan you can afford.
* Local agencies may be able to help with your energy bills and emergency needs.
* If you have more questions or concerns, call the U.S. Department of Housing and Urban Development, toll-free, at 1-800-569-4287.
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Lenders Feel Safe with Home Equity Loans
If you need to borrow a lot of money or your credit is not so good, think about a home equity loan. With home equity loans, lenders often are more flexible. These loans essentially are a second mortgage. They are considered safe loans to make, because your home is your collateral. Homeowners are likely to work hard to pay off their equity loans because they don't want to jeopardize home security. Here's what you may with an equity loan:
* Lower interest rates;
* Relatively easy qualification standards;
* Tax deduction;
* Large, lump sum of money.
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Interest Only Equity Loans – Quick Cash and Low Payments
If you find yourself in a pinch and need some fast money without knowing how able you will be to make large amounts in repayment, equity loans are probably the best option for you. Because most equity loans are repaid on an interest only basis, you can borrow a large amount and not be burdened with large monthly payments.
With the interest only repayment, you are not required to make payments towards your principal balance. This means that you are only liable, each month, to repay your accrued interest. Without the burden of a large monthly payment, you can get the flexibility that you were looking for in the first place when you started looking at an equity loan.
For more information on interest only equity loans, contact one of our sponsors or a mortgage specialist in your area. The answers that you are looking for are out there from many places and it is up to you to reach out to find them.
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The Difference Between a Home Equity Loan and a Home Improvement Loan
If you want to make home repairs or improvements, you could use either an equity or home improvement loan. A home equity loan or line-of-credit may often make more sense, though. The differences are minimal, although one of them might be important to you for reasons of convenience and simplicity.
A home improvement loan will often require that you provide your lender
A comprehensive list of the improvements to be made;
An estimate of the costs of each component of the improvements;
A listing of the contractors who are scheduled to perform the work; and
A timing schedule of the improvements to be made to determine the amount and frequency of disbursements of your proceeds by the lender.
If you have insufficient equity in your property to generate the cash you need for your improvement project, you will have little choice but to apply for a home improvement loan. However, if you already have enough equity to qualify for an equity loan or line-of-credit (HELOC), this may be the better choice.
The interest rates should be equal or very similar with both mortgage types. Repayment terms should also be comparable. But, getting a home equity loan gives you all the cash you need in a lump sum and you can pay your contractor(s) as you wish. A home equity line-of-credit gives you even more flexibility, as you will only pay interest on your loan balance outstanding at month’s end. Therefore, should your improvement project span more than just a few months, you would save some considerable interest expense as your balance will begin small and only increase toward your maximum over time.
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Equity Definition and Common Loan Maximums
The “formula” for determining your equity is quite simple. First, determine (or effectively estimate) your home’s fair market value (FMV). Next, subtract the balance of your first mortgage loan. The difference equals your equity in the home. For instance, if your home is worth $250,000 and your first mortgage is $100,000, your equity is $150,000. The size of the loan you can get will be based on the following –
The percentage of your home’s FMV your lender will allow (usually between 80% and 90%);
The amount of your first mortgage loan;
Your credit report and score; and
Your income and expenses, which give the lender an idea of how much debt you can afford.
The maximum loan that is allowed will be determined by your lender combined with the highest amount you can afford based on your income and credit situation.
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Cost to Get a Home Equity Loan
It is normally much less expensive to close a home equity loan than a first mortgage loan. Instead of a complete interior appraisal, a “drive by” or sometimes a real estate tax bill showing the assessed value of your home may suffice. In lieu of a full title examination, only a brief title search that goes back to the recording date of your first mortgage is usually required. Since a title insurance policy was issued at your first mortgage closing, another policy is unnecessary, further saving you money. Instead of costing multiple points (one point equals one per cent of your mortgage amount), a home equity loan should cost between zero and one point at most, saving you hundreds of dollars.
The basic costs will include a title search, the cost for justifying that the fair market value (FMV) of your home supports the amount of money you want (outside appraisal, tax assessment), recording fee (to record the additional mortgage on the property), and origination cost (points), if any. Unlike most first mortgages, there should be no title insurance cost, junk fees (underwriting, processing, warehousing, funding, doc prep, or miscellaneous fees), over night mail costs, or full title examination expense. Your total cost should not exceed about one to one and one-half percent of your new loan amount. In many cases, it might even be zero. Shop around as lenders often offer no cost incentives.
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Use a Home Equity Loan Instead of a First Mortgage Refinance
There are a few reasons why you might use a home equity loan instead of refinancing your first mortgage:
Your first mortgage rates and terms are excellent, or at least better than those you would receive if you refinanced today;
You want to use your equity proceeds for a specific project for a relatively short period of time (less than 15 years);
You do not want to incur the sometimes considerable expense of closing a new first mortgage loan and you can obtain a home equity loan for little or no closing cost;
You need to cash out quickly and don’t want to wait for a first mortgage closing.
Getting and closing a home equity loan can be inexpensive, fast, and simple, without all the documentation and added cost of refinancing a first mortgage loan.
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How a Home Equity Line-of-Credit Works
Like a straight home equity loan, a home equity line-of-credit (HELOC) allows you to borrow up to a stated percentage of your home’s fair market value (FMV) less the balance of your first mortgage loan. The credit and income verification process remains the same, as will the title examination, mortgage deed and note preparation. The note language, however, will be different. Instead of regular pre-calculated monthly payments according to a stated amortization schedule, this note will require either interest-only payments based on the amount of the loan outstanding at month’s end or interest-only payments plus some computation of a principal payment portion to be included.
After the closing and the rescission period, you will not receive the proceeds from your loan. You then have the opportunity to spend your proceeds in any amount at any time on any purpose you wish, up to your credit line maximum. Excellent for home improvements or having available low interest rate funds for other major purchases or instant cash flow reasons, a HELOC gives you the flexibility to use your proceeds when you want and repay on a schedule that fits your budget.
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How a Home Equity Loan Works
Before attempting to figure out your home equity loan amount, you must first determine what your equity level is. You need to determine your home’s fair market value (FMV) through an appraisal. After you learn what your home is worth, subtract the balance of your first mortgage. The difference is your current equity value. The maximum you can borrow will be a per cent of your home’s FMV, depending on which lender you select.
For instance, if your home is worth $300,000, your first mortgage balance is $170,000, and your lender will loan up to 80% of the FMV (minus your first mortgage balance), you could borrow as much as $70,000. {$300,000 x 80% = $240,000 - $170,000 = $70,000}
A credit report, income verification, title examination, mortgage deed and note will be prepared. At the closing of the loan, you will be given a document called the “right of rescission”, which gives you three days to cancel the loan. You must sign and deliver this document to your lender by midnight of the third day after closing if you choose to cancel the loan. If you do nothing, you will receive the entire proceeds of your home equity loan ($70,000 in our example) on the fourth day after closing. You may spend these proceeds however you see fit. You will repay the loan according to a pre-calculated repayment amount, if a fixed rate loan, or a schedule of payments that are constant until the first rate adjustment date.
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Home Equity Loan or Line-of-Credit?
While these two loan types really have the same basic rules for approval, they work a bit differently. When you are close a Home Equity Loan, in three days you will be given a bank check for the entire amount of your loan. Three days after you close a Home Equity Line-of-Credit (HELOC), you most often will receive no funds from your lender. You will, however, be given a number of checks from your lender or be allowed to write checks from your own account for amounts up to and including the full amount of your loan.
If you have a specific purpose for the majority of your proceeds, you might be better off with a home equity loan. Like a first mortgage, your payments will have been calculated and a complete amortization schedule will apply. Should you not immediately need all of your proceeds, but plan to disperse these funds over a longer time period, a HELOC may better serve you. You will owe interest only on the amount of your loan you have used instead of the entire amount, which will keep your payments lower than a fully dispersed loan until you have drawn your balance to the maximum. Often a HELOC will only require monthly interest payments, again maintaining minimum cash due each month. For cash flow purposes, this is an obvious advantage to you. However, there is no loan reduction unless you also include principal payments. This can become dangerous and should not become a formal plan of action.
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Get the Best Lender for a Home Equity Loan
Choose your home equity lender carefully. Contact at least three different lenders to comparison shop, and never deal with anyone who calls you first or appears at your door unsolicited offering to help you secure a home equity loan.
A good way to find a broker or lender you can trust is to ask for referrals from friends and family members. Or look at newspaper ads or ads online. Although your home contractor seems handy with repairs, don't accept offers to arrange for your financing and equity loans. You need to talk with a licensed professional. Have your loan sent to you, not to your contractor.
It's not a bad idea to talk with a mortgage broker, who offers convenience and may have wider access to lenders. Just remember that the broker does not lend you the money. The broker matches you with a lender and arranges for the equity loan. Look at the broker's offer, but also check with a couple of lenders to see if you can get a better deal.
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Spend Equity Loans Wisely
Home equity loans and equity lines are popular borrowing tools for millions of Americans. Some use the loans to update their kitchens and reinvest in their homes. But others use the money to live a lifestyle they cannot afford on their salaries, buying luxury items like third cars or taking exotic vacations. Some families even use their loans to cover day-to-day expenses as they live beyond their means.
These are dangerous practices. Money counselors advise people to use their equity loans for important investments like a child's college tuition. Try to heed this rule for keeping you and your family financially secure when borrowing against your home: Keep at least 20 percent equity in your house.
Don't let your debts through mortgages, home equity loans, or equity lines reduce that amount.
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Borrowers May Rely Too Heavily on Home Prices Rising
A lot of borrowers count on their house increasing in value. Who wouldn't? Real estate and homebuying have been great investments for Americans for generations.
Borrowers often count on paying off a second mortgage when they sell their home. So they don't worry about the huge lump sum they borrow to finance big-ticket purchases and vacations.
But what if real estate values fall? What if your house value does not rise as expected? Then you will owe more on the house than it is worth. You still have to settle your debts but out of your own pocket.
You can face serious financial problems, or you may have to stay in a house you do not want or no longer need. Use your home equity loan for home improvements that will increase your home's value. Don't spend borrowed money on purchases you can live without.
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When to Look Into Home Equity Loans
Home equity loans are being taken out by more people on more properties every day. There are still many others that do not understand what home equity loans are. These same people are often intimidated by the idea of a home equity loan and therefore never inquire about one. That is too bad, because for many, a home equity loan could have been the best decision for their situation.
Some common situations that are great for home equity loans are as follows.
When you have an unexpected expense, there are few places where you can borrow funds for as low an interest rate as with home equity loans. Unfortunately, these medical, lifestyle, or other expenses can spring up when you least an afford them. With a home equity loan, you can quickly access large amounts of money at super low repayment rates.
Another common situation where people look to take out home equity loans is when they need to make home improvements. Things such as a new roof or new paint do not come cheap. Few people have the funds on hand to just make these things happen. With a home equity loan, you are taking advantage of your established home equity to re-invest in the value of your home.
If you are in any of these types of situations and have an opportunity to take advantage of home equity loans, jump on it. You simply cannot find lower interest rates to borrow a large amount of money… anywhere.
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Rate Hikes Help Stabilize Market
The interest rate hikes that began in the third quarter of 2005 seemed to have dampened home sales through the year's end. As sales have begun to increase in 2006's first quarter, it is a good indicator that the market will actually stabilize and result in a "cooling" of some of the reputed "bubble" markets.
What does this mean for homebuyers and sellers? The stable market is a healthier environment for both buyers and sellers. A balanced market offers buyers more homes to choose from and less pressure to purchase immediately. Sellers may experience a marginal increase in market time but there should still be plenty of potential buyers.
Mortgage-seekers will need to be aware of rates through the spring and summer of 2006 as indicators continue to point to additional rate increases.
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HUD's Version of the Equity Loan Appeals to Seniors
HUD offers a reverse mortgage program for older homeowners that works like an equity loan but with some key differences. Like traditional equity loans, the HUD program lets people borrow against the equity in their homes.
You must be 62 or older and have paid off your mortgage to qualify. In some cases homeowners with only a small payment left on their mortgages can get this HUD-sponsored equity loan. Known as a reverse mortgage, the program lets homeowners receive payments in a lump sum, monthly, or occasionally as a line of credit.
The size of the equity loan is determined in part by the borrower's age. The older the borrower is, the more he or she may receive. The condition of the home and interest rates also affect the amount. Unlike ordinary home equity loans, the borrower does not need to pay back the reverse mortgage as long as he or she lives in the house as a parimary residence.
When the home is sold, the lender is repaid the principal, plus interest. Whatever is left goes to the homeowner or the heirs of the homeowner. If there is a shortfall, HUD covers the difference. All borrowers must pay insurance to the Federal Housing Administration, or FHA, to participate in the program.
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Home Equity Loan Comes with Cooling Off Period
Three business days is the amount of time you have to cancel a home equity loan or second mortgage after you signed for it. Federal law gives you this period to change your mind. You can cancel the deal without reason and you will not face penalties for doing so. But you must cancel in writing, and the lender is required by law to return any money you have paid to process the loan.
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Take The Max with Your Home Equity Line of Credit
There are many things that people do not know about home equity lines of credit. One of the least understood things is that the more money you borrow and draw out of the line, the lower the initial rate you can lock. Lenders will compensate a large loan with a lower rate and anyone who is taking out a home equity line of credit should take out the maximum so that they can get the best rate possible.
There is another little known fact that relates directly to the previous one. Not only should you draw out the maximum in order to get the best rate, but you can almost immediately turn around and pay the entire amount back if you like and carry a zero balance on the loan while keeping the rate. The only penalties with a typical home equity line of credit involve closing out the line. There is a difference between paying off the balance and closing the account. While you are welcome to carry a zero loan balance for as long as you like without penalty, if you choose to close the account, you may be subject to a prepayment penalty.
If you are looking into a home equity line of credit, ask your broker about how you can get a lower rate by drawing out more equity. It is an option that will make the most sense in the end.
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Hud Discussing Changes to RESPA
The 1974 Real Estate Settlement Procedure's Act is undergoing potential changes by HUD. HUD views the revisions as necessary if consumers are going to continue to benefit from FHA financed mortgages.
Once a popular loan vehicle providing financing for more than 122,000 buyers in 1999, the financing has fallen to a dismal 5,000 in 2005. HUD desires changes to remove excessive home inspection and repair requirements, increase loan limits and reduce cash requirements.
Historically, FHA has been an excellent lending tool for First-Time Buyers or those with credit blemishes. FHA traditionally allowed for consideration of credit issues and would lend to borrowers who had not acquired a long credit history.
While changes will not happen quickly, the agency has indicated its interest in facilitating President Bush's push to create home-ownership opportunities for minorities.
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