The most important word in “home equity loan” is equity. Start with the fair market value of a home, subtract the mortgages (first and second) and any liens against the property, and what you have left is the equity. This equity can be used as collateral to secure cash in the form of a loan or mortgage.
The amount borrowed is based on a percentage of the appraised value of the home. The percentage rate can vary from 75% to 125%. The length of the financing will also vary. The two main types of home equity loans are fixed rate loans and adjustable rate loans.
Fixed rate loan – provides a fixed amount of money at a fixed interest rate, repayable in equal payments over the life of the loan. Fixed rate financing costs more in set-up fees and comes at higher interest than adjustable rate loans. But if homeowners stay put and interest rates go up, they will save money over a comparable adjustable rate loan.
Adjustable rate loan – the interest rate goes up or down according to the index upon which it is based. Adjustable rate loans will have a cap on how high the interest rate can go. Usually called ARMs (Adjustable Rate Mortgages), this type of loan has lower up-front costs and starts at a lower interest rate than fixed rate financing. This means lower initial monthly payments.
Home Equity Line of Credit (or HELOC) loans offer unique options for borrowers. HELOCs are generally adjustable to the prime interest rate, which means if the prime rate goes up or down, then so does your payment. The primary benefit of a HELOC is that as you pay it down, you still have access to your equity (usually through a check or credit card). That equity is always available to you for investments, paying off high interest debt, vacations, or to pay off unexpected bills.
Putting Home Equity to Good Use
According to the Consumer Banker Association, the top ten reasons for getting a home equity loan are:
10. Vacation
9. Medical expenses
8. Business expenses
7. Household expenditures
6. Investment
5. Major purchase
4. Education expenses
3. Automobile purchase
2. Home improvement
1. Debt consolidation
Debt consolidation, the most popular reason people cash out their home equity, is a smart form of financing because of the money it can save. For example, say you owe $15,000 on a credit card that charges 17% interest. If you get a debt consolidation loan at 9% interest and pay it off in five years, you’ll save you over $30,000!
If you’re paying more than 15% interest on anything, you should seriously consider a debt consolidation loan. The right terms could drop your monthly payments by 35%-50%, depending on interest rates, origination costs and tax consequences.
Even for people who have bad credit or who have filed for bankruptcy, a home equity loan is not out of reach. It can be a good way to make a fresh start.
JumpStartMyCredit.com works with mortgage companies all over the country. We work hard to match you with mortgage lenders that are the best match to your particular situation. Whether you have good credit, bad credit, or something in the middle, JumpStartMyCredit.com can be your one mortgage resource.
Up to Four Mortgage Offers
At JumpStartMyCredit.com, we feel the best way to get a great loan is to compare your options. We will route your mortgage to up to four lenders that are best suited to help you on your home purchase loan. Property location, credit type, loan to value, applicant stability, and other factors are used to determine which lenders will work best for you. All you have to do is sit back and pick the best loan. You can literally save thousands. What do you have to lose? The answer is nothing.
Pride of Ownership
Are you tired of watching your friends and family who own their homes gain thousands of dollars in equity each year while you rent? It is not a secret, for most people, their home is the best investment they will ever make. If you are currently paying rent, you can probably afford the monthly payment on a mortgage. Give JumpStartMyCredit.com a shot. We want nothing more than to help you with your next home loan, no matter if it is your first, or your fifteenth.
Rates Are Rising
Current interest rates are still near record lows. If you delay the purchase of your home, rates could rise and you could have lost hundreds every month because you waited. Do not risk it. Apply for your home loan today. Even if you have not found the home you want to buy, you can get pre-approved and find out exactly what you qualify for. With a solid mortgage pre-approval, your offer is as good as cash and as a buyer, you have much more negotiating power.
No matter what your current situation is, we should have a home loan option for you.
JumpStartMyCredit.com has several different refinance options to serve you. Only by carefully evaluating all of the options can you make an informed decision. Let’s go over several of your mortgage refinance options:
Home Equity Line of Credit (H.E.L.O.C.)
A HELOC is a line of credit on your equity, just like the name implies. The true beauty of a HELOC is that you can use it like a credit card, or a checking account. It is possible to open a line of credit on your home, and not use the entire line right away. By doing this, you have access to thousands of dollars with very short notice. Some people use HELOCs for investments, to pay unexpected bills, to consolidate high interest debts, to pay off medical bills or legal fees, or to go on vacation.
With a HELOC, lenders typically give the borrower(s) a check book and/or a credit card that will take money directly from the unused credit line.
Debt Consolidation Mortgage
Debt consolidation mortgages are set up for the sole purpose of combining high interest and high payment debt into one low monthly payment at a better interest rate. The equity on your home serves as the loan collateral, and the payment and interest rate are usually fixed.
Mortgage Refinance
With mortgage rates still at historic lows, it is easy to see why borrowers are locking in low rates now, while they still can.
Most refinance mortgage loans serve one or more of these three purposes: 1. Cash Out, 2. Lower Payment, 3. Lower Rate. It is often possible to pull a lot of cash out at closing, while locking in a lower rate then you have now, and lower your monthly mortgage payment.
Do not wait for mortgage rates to go back up. Apply today with Jump Start My Credit and start saving money. Get up to four loan offers by filing out one easy application. After that, all you have to do is pick the best loan.
Bad Credit
JumpStartMyCredit.com works with lenders that help with all types of credit. If you are scared about being turned down, don’t be. If there is a way to get your loan approved right now, our lenders will find it. If your credit seems beyond help right now, you might also consider using the Credit Repair and Debt Settlement services offered here at JumpStartMyCredit.com.
Before you get out there and start looking at houses, it’s a good idea to determine not only what you want in a house but also, more importantly, what you need. It focuses your house hunting, and saves you valuable time by only looking at houses that meet your criteria.
Here are some things to think about as you set your priorities:
Where do you want to live?
Do you want to live close to your family or as far from them as possible?
What kind of schools do you want your children to go to?
How important is it to you to be close to shopping, work, hospitals, entertainment, community amenities?
Is the amount of traffic important to you?
Looking for a house really starts with looking for a neighborhood. Deciding where you want to live will save you a lot of time as well as miles on your odometer and is the key to narrowing your search for a home.
How long do you expect to live in your new home?
If you plan on living in your new home for only a few years, or if you don’t have children, then proximity to schools may not be an issue, but resale value may be. On the other hand, if you have a family and plan on staying put for ten years or more, schools and home size will be priorities.
What don’t you like about where you’re currently living?
Making a list of what you definitely do not want in a home will help you weed out homes without having to waste your valuable time looking at them.
What’s your lifestyle like? Do you entertain a lot? Then you’ll want a home that lends itself to that. Do you work from home? You’ll need a home with a place to create an office. Are you a gardener? Then lot size is a priority.
Keep these things in mind as you make your list of home wants and needs. And remember, your list needs to be flexible in case you can’t find a home in your price range with all the amenities you want. It’s a good idea to put the list in order of importance. For instance, an eat-in kitchen may be more important to you than a fireplace.
How much home can you afford?
Few things are more frustrating than falling in love with a home only to discover that it’s not in your price range. The best way to know how much you can afford is to find our how much money you can qualify to borrow.
There are two things you’ll want to consider doing even before talking with a home loan expert about how much you can afford to borrow:
. Check Your Credit
Check your credit by getting a copy of your credit report. Your credit report determines your credit score, which is needed for qualifying for a home loan. Order your credit report from the three major credit bureaus, check them carefully for discrepancies and errors, and have each bureau clear any errors from your report.
. Know Your Monthly Payment Amount
Be sure to calculate how much of a monthly mortgage payment you’re comfortable paying. You may qualify for a loan amount that would require a higher monthly payment than you’d like to pay. Sit down and figure out your monthly expenses for a new home.
Remember to include items such as maintenance, home improvements, taxes, insurance, and association fees if applicable.
Mortgage Basics
Simply put, a mortgage is a loan you take out to finance the purchase of your home. It’s also a legal contract stating that you promise to pay back the loan on a monthly basis. Your monthly payment typically goes toward interest, taxes and insurance as well as the loans principal.
There are literally hundreds of variations of mortgages. Fortunately, there are just a few basics you need to know in order to understand most of them.
Fixed-rate mortgages have a fixed interest rate over the term of the loan. By far, most mortgages are fixed-rate mortgages. The main advantage of a fixed-rate mortgage is that your monthly payment never changes. The disadvantage is that if interest rates fall below your fixed-rate, and you want to lower your rate and consequently your mortgage payment, you’ll have to refinance.
Adjustable-rate mortgages (ARMs) start with a lower interest rate than a fixed-rate mortgage for an introductory period—typically 1, 3, or 5 years. After that, the rate adjusts, usually annually, based on a pre-determined index. An ARM is a good choice if you’re expecting to live in your home for less than five years and can also help you qualify for a larger loan.
The term of your mortgage is the number of years you have to pay back the loan. Most people opt for 30-year terms, but 10-, 15-, 20-, and even 40-year terms are also available. The down payment is the difference between how much you borrow and the purchase price of your home. And, in spite of what most people think, you don’t need a big down payment to buy a home. There are many low and even zero down payment loans.
Get approved for your home loan before you shop.
Why apply for a mortgage when you haven’t even started looking for a house yet? You’ll be in a better position to negotiate because the seller knows that you’re already approved for your mortgage and that your offer is good. Having an approval gives you these advantages as a buyer:
You know exactly how much home you can afford, eliminating the guesswork.
You’re in a better position to negotiate a lower purchase price becausethe seller knows your offer is good.
Once the appraisal and title work’s been done, you can close on a home in days, not weeks, potentially saving the seller a lot of money—another bargaining chip.
You’re a virtual cash buyer—it’s like shopping for a home with the money in your pocket.
Confusion among homeowners due to ineffective and complex mortgage disclosures resulted in a study by the Federal Trade Commission in which 80% of mortgage customers were given disclosure forms for an abstract loan. The message is loud and clear there is a need for easy to read and comprehensive mortgage terminology.
The study described in an article from Los Angeles Times on June 14, 2006 by Kathy M. Kristof shows how most borrowers are perplexed by the complexity of mortgages due to an unsuccessful explaining of costs and the risks of home loans as well as a lack in the understanding of the terminology.
In a press release issued May 7, 2007 by the U.S. Department of Justice and the Federal Trade Commission (FTC) the purpose of the joint report, “Competition in the Real Estate Brokerage Industry,” is to inform consumers and others involved in the industry about important competition issues involving residential real estate, including the impact of the Internet, the competitive structure of the real estate brokerage industry, and obstacles to a more competitive environment.
In a complicated world that demands constant attention and offers an array of choices, the fact is, consumers prefer less choices and simplicity. A number of details lead to complexity and this can overwhelm consumers. It is all too common; the more choices we have the more we struggle to choose.
Have you ever heard of anybody complaining about the bundling of gas prices? What you do not see is that the local state and federal government each gets one third or 33% of money in taxes, while the oil companies get ten percent and gas stations get five percent. But no one seems to care where the money goes.
For the same reason, an itemization of all the details concerning mortgages can deter consumers from understanding mortgage’s disclosures. Perhaps, a bigger problem is the deceptive tactics often used by the mortgage lenders to sell home loans to consumers as shown in the study.
So, the issue here is not just the confusion of terms but also deception. New companies will resolve the confusion, including services where real estate agents and lending professionals can facilitate approval and processing of loans for customers faster.
Consumers should look for companies like this that provide a clear diagram of the program class loan amount, total down payment and closing costs, monthly payments, loan rate, APR, commission, and agent yield. Borrowers can identify the loan amount, the upfront cost of the loan, penalty amounts, the annual percentage rate, the amount of cash due at closing or the monthly payment, and if the payment included charges for property taxes and insurance.
