The Ins and Outs of Home Equity Line of Credit Loans

If you are a homeowner, you may be considering opening up a home equity line of credit. While having an open home equity line of credit is a good idea, there are many things that you should consider before going that route.

What is a Home Equity Line of Credit?

After you purchase a home, you will begin building equity in your home with every payment that is paid toward the principal. This is because your home’s equity is the difference between how much you still owe on the home and how much the home is worth. If your home is valued at $250,000, for example, and you owe $200,000 on the home, you have built $50,000 in equity.

When you take out a home equity line of credit, the bank will allow you to take out a loan that is equivalent to a certain percentage of your equity. Most lenders will allow you to take out a home equity line of credit that is worth up to 80% of your equity. Therefore, if you have $50,000 in equity, you will be able to obtain a home equity line of credit of up to $40,000.

A home equity line of credit is different from a traditional home equity loan because you do not get the entire loan in one lump sum that needs to be repaid in monthly installments. Rather, you are given a line of credit that is similar to what you receive with a credit card. As such, you can borrow against it whenever you need the money and you pay it back in the same way as a credit card. In terms of payment, the major difference between a home equity line of credit and a credit card is that home equity loans generally remain in effect for a specific period of time. At the end of that period of time, the entire remaining debt you owe becomes due.

The Drawbacks of a Home Equity Loan

The major drawback to home equity loans is the fact that your home is put up for collateral. As such, if you default on the loan, your home can be foreclosed upon in order to repay the debt. Therefore, you should use great care when deciding what you will purchase with your home equity loan and you need to be certain you are in the financial position to repay the loan in a timely manner.

The Benefits to Home Equity Loans

One of the benefits to home equity loans can also be seen as a drawback: ease of attainment. Since your home is used as collateral, it is fairly easy to obtain a home equity loan even if you have bad credit. This is nice if you are in a pinch and really need the cash, but it is bad if taking out the loan puts you in a bad financial situation.

The interest you pay on a home equity line of credit can also be used as a write-off on your tax return. Therefore, taking out a home equity line of credit for a loan that will take time to pay off is a better option than using a credit card.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

Tapping Into Your Home’s Equity

According to research conducted by the Federal Reserve, the best investment you can make is purchasing a home. Unlike the stock market, which can be quite volatile, the investment you make into your home is relatively risk free and generally provides a reliable return of the money invested. In fact, the Federal Reserve claims that those homeowners that sold their homes during the last five years made a net capital gain of $25,000 or more. At the same time, if you want to take advantage of this net capital gain, you don’t actually have to sell your home. In fact, you can tap into that equity in a number of different ways.

Refinancing Your Mortgage

One way to take advantage of the equity in your home is to take out a refinancing mortgage. When you refinance your mortgage, you actually replace the old mortgage with a new one. When replacing the old one, however, you borrow more than what you still owed on the home. This way, you can use the extra money in any way you please. If you managed to get a lower interest rate on your refinanced mortgage, you can potentially save yourself a little money as well.

Taking Out a Home Equity Loan

When you take out a home equity loan, you don’t replace the old loan. Rather, you still carry the other mortgage loan and you simply add another home loan on top of it. For this reason, home equity loans are often referred to as second mortgages. Taking out a home equity loan requires less paperwork than refinancing, but the interest rates tend to be several points higher than refinanced mortgage rates.

Preparing for a Rainy Day with a Home Equity Line of Credit

Just as with a home equity loan, a home equity line of credit is a type of loan that is in addition to your mortgage. This type of loan is different, however, in that you are extended a line of credit in the same way you receive a line of credit with a credit card. In this way, you can borrow against the line of credit as you need to, but you can also keep your balance at $0 if you don’t need to borrow against your equity. This type of equity loan typically has few up-front costs and you can usually get approved for one of these loans rather quickly. In addition, you don’t have to worry about paying interest until you actually borrow against the credit line.

If you need to tap into the equity that you have built in your home, be sure to explore your options and select the one that is right for you. At the same time, avoid taking out a home equity loan or refinancing your home for frivolous expenses. After all, your home is on the line when you refinance or take out a home equity loan and you want to be certain you can afford to pay the loan back.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

Understanding the Difference Between Being Pre-Qualified and Pre-Approved for a Mortgage Loan

If you are in the market to purchase a new home, you might want to consider meeting with a lender in order to find out how much you can afford to pay on your new home purchase. By meeting with a lender, you can successfully determine a price range for your home purchase, which will help you to significantly reduce your choices. At the same time, when you meet with a lender to discuss how much you can afford, you might be a bit confused by the terms associated with this prescreening process.

Getting Pre-Qualified

While there is some disagreement within the industry regarding what it means to be “pre-qualified” for a loan, most lending institutions agree on one definition. The most commonly accepted definition is that getting pre-qualified for a loan means that the lender has made an educated guess about how much you can afford to purchase a home. This guess is based entirely on the information that you provided to the lender and may change significantly once the lender verifies the information that you provided. Of course, the more honest you are with the lender, the closer these figures will match with the amount you are actually approved to borrow.

Getting Pre-Approved

Again, there is some disagreement surrounding what it means to be pre-approved. The general consensus of this term, however, is that the lender has actually verified the information that you have provided. With this information, the lender was able to more accurately determine how much of a loan you would be able to receive. Although this is still not a guarantee of approval, you can be relatively certain that you will be able to qualify for a loan up to the amount the lender has pre-approved.

The Benefits of Getting Pre-Qualified and Pre-Approved

There are many benefits associated with getting pre-qualified or pre-approved for a mortgage loan. The most obvious benefit is that it gives you a better idea of how much you can afford to pay on a home. Of course, you should also take a look at your budget for yourself and consider both your short-term and long-term goals in order to be certain you can truly afford the amount you have been pre-qualified to receive.

When it comes to making an offer on a home, being pre-approved for a loan can also be advantageous. Since you went through the trouble of getting pre-approved and because it is relatively certain that your loan will be approved, a home seller may accept your bid over another person’s bid if you are pre-approved for a loan. Also, by being pre-approved before you start house hunting, you may be able to close the deal sooner once you find the perfect home.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

5 Tips for Taking Out a Mortgage Loan

When it comes time to purchase a home and take out a mortgage, there are several mistakes that many homebuyers and homeowners do on a routine basis. In order to be certain you put yourself in the best financial position possible and that you properly protect yourself and your home, be sure to implement these five simple tips.

Tip #1: Do Your Research

Many homebuyers, particularly first time buyers, are so excited about purchasing a home that they fail to do their research about available types of mortgages. Be certain to take your time to investigate the types of mortgage loans available and choose the one that suits your finances, future goals, and lifestyle the best.

Tip #2: Don’t Have Too Much Credit

When it comes time to apply for a mortgage loan, many lenders will frown upon your application if you have an excessive amount of credit. Even if you are responsible with your credit cards and other loans, having too much credit can be almost as bad as having poor credit. So, don’t apply for any new loans before it comes time to apply for your mortgage.

Tip #3: Be Honest on Your Loan Application

Some homebuyers are tempted to lie on their mortgage applications, particularly when it comes to how much they make. Not only can misleading information get you caught up in a mortgage you really can’t afford, lying on a mortgage application is a federal offense. Although most lenders do not prosecute people for lying on their applications, it is certainly not a risk that you want to take. In addition, if you are approved and the lender later discovers that you lied, you may be forced to pay the entire remaining balance of the loan all at once.

Tip #4: Never Sign an Incomplete Application

Just as you may be tempted to stretch the truth in order to be approved for a loan, an unscrupulous lender may also put false information on your application in order to gain approval. Therefore, make certain all of the blanks are filled in before you sign your application.

Tip #5: Get the Home Inspected

Although getting your home inspected is an added cost that you may not want to have to pay, it is in your best interest to get it inspected before you make a purchase. A home inspector looks over every aspect of the home and will be able to tell you if there are any problems with the home. This way, you can better determine if you really want to purchase the home or you can renegotiate the price according to the repair that need to be done. By getting the home inspected, you give yourself one more chance to make certain you are getting what you ask for with your new home.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .