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Using Your Home Equity for Credit

There are times in life, especially in todays’ economy, when you need money. Maybe you were irresponsible, spent more money than you had, and are now in the hole. Maybe a medical condition, not covered by insurance, has caused hospital bills to pile up. Maybe you want to remodel your house. Whatever the reason, your house’s equity is one option available to you if you’re hurting for cash. The two ways of tapping your equity are by receiving a home-equity loan, also called a second mortgage, or by opening a home-equity line of credit. I must stress that neither option is to be taken lightly. Realizing you’re unhappy with your wardrobe and want to go on a shopping spree is not a reason to tap into your home’s equity.

Home Equity Loans

A home-equity loan, or second mortgage, is basically putting a second lien on your house. Once your house is reappraised and assigned a value, you can be given a loan for a certain percentage of that value. The percentage varies depending on the housing market, your credit, and who is giving you the loan, but typically it’s possible to get a loan for 75% to 90% of your house’s value.

If you are accepted for a home-equity loan, the lender will write you a check for the full amount. You will then start immediately making monthly payments on the principal and interest. The loan is usually at a fixed-rate for 10 to 15 years. Second mortgages usually have higher interest rates than first mortgages, so again, this is not to be done for anything trivial. Home-equity loans are a good way of getting cash right away that you can put to use to make money in the long term. One example would be using the loan to remodel your house, which would increase the home’s value when you go to sell it later. Another wise use of a home-equity loan would be to open a small business.

Home-Equity Line of Credit

Home-equity lines of credit are variable-rate credit lines similar to a credit card. You are given a maximum limit based on the amount of credit for which you are approved and can borrow and pay the money back at will on your own schedule. You simply write a check or use a check card against the line of credit rather than your checking account. With home-equity lines of credit, you only pay interest on the money borrowed –  at least at first. The lines of credit are all different, so be sure to ask the terms before signing anything. Sometimes lenders will charge you interest only on borrowed money, or a smaller rate, during the advance term. Then during the repayment term you could owe the principal and a compounded interest, have to access to the funds, and be required to pay on a monthly schedule like a credit card. Often you could have a 5 or 10 year period to pay off the loan but only be able to access the credit during the first half of the period. Again, the key is to understand the terms and make sure they will work for you.

Caveat

Borrowing money is always a risk and should only be done if necessary and if you have a feasible plan for paying the money back. If you put a second mortgage on your house and are later unable to pay it, the same thing happens as if you default on your first mortgage: You will lose your house. Also, as with any loan, don’t blindly accept the maximum amount that the lender is willing to give you. There are a lot of foreclosures that have happened because people were unaware of how much money they would be able to repay. If you’re offered an 85% loan but only need a 70% loan to get the job done, take the 70% loan. All money you borrow you have to play back, plus interest, so don’t borrow money you don’t need. Also, lines of credit may have a balloon payment, where during the 10 years, or whatever the length, you can borrow money at will and only have to pay interest in the loan. At the end of the term, however, the entire balance is due. Someone who doesn’t budget properly can get into trouble that way and possibly even end up owing more than the house is worth. Again, the key is to budget and be careful.

In Closing

The application process for a home-equity loan or line of credit is very similar to the process for a first mortgage. The lender will appraise your house and determine if you have the ability to repay the loan. As with any loan, you should shop around for the best deal. If done correctly, tapping into your home equity can be a wise decision. Just do your homework, stick to your budget, and play it safe.

Soon we’ll be listing additional reviews of the top sources for home equity loans online.

It’s always something, right? Let’s just say that you found the perfect home for your family – it has the right amount of bedrooms/bathrooms, generous square footage, is in nice shape, newly updated, and even within your price range. You are psyched and ready to put down an offer, when the agent tactfully drops the bomb on you: part of the home (an extra bedroom, a sunroom, a garage conversion) was built without the legal permits some years ago, and the seller wants to sell the home in “as is” condition. What do you do? Is it an automatic deal-breaker if a home has unpermitted work done on it? Is there anything you can do to fix the situation? How can you be sure that the work was done well? Should you seek a discount from the seller?

Like so many other women my age, I love my Pinterest account. For the uninitiated, Pinterest is a sort of virtual bulletin board where members can accumulate and organize images, many of which are attached to links. Popular categories of pins include recipes, fashion inspiration, fantasy wedding details, and home décor and design. That last category accounts for the most pins on the whole site – over seventeen percent, says business-intelligent experts RJ Metrics. Pinterest users, which are eighty percent female, are using the service to plan both big and small home projects, ranging from redecorating a bedroom all the way to designing a mansion from the ground up.

People have been known to shell out a LOT of money on renovating and improving their home, both in the name of adding comforts and supposedly improving home equity. Most people believe that they will recoup their investment when they go to sell the house. Unfortunately, reality doesn’t bear out that assumption. In reality, only the most practical home improvements tend to pay off… and the bigger the project, the fewer cents per dollar that you are likely to earn back when you put the home on the market. Upgrading to a steel front door is likely to pay off. Building a lavish master suite as an addition onto your existing home? Not so much. Remodeling magazine recently examined some of the most popular home improvement projects and calculated just how much these upgrades were worth when owners sold the home. You might be surprised at the results.

The Census Bureau announced this week that, in the first three months of 2012, the American homeownership rate hit a fifteen-year low. During the halcyon days of the housing bubble that preceded the current crash, Americans turned out in droves to buy houses. At one point in the Oughts, homeownership actually jumped up to almost seventy percent. All those gains have been lost, however, thanks to millions of foreclosures. Because of the combination of very low housing prices and low interest rates that have not yet bottomed out (thank the Federal Reserve), this has become a really good time to purchase a house. Unfortunately, because more people are not doing so, rents have been going up from coast to coast. What this seems to indicate is that there are probably lots of people out there renting a house, apartment, or condo who would like to buy a home.

Seminole County Chief Circuit Judge Alan Dickey is going to have a busy week come next Tuesday. For three days in a row, the judge will process three hundred straight foreclosure cases per day. If everyone shows up, he told the Orlando Sentinel, he will have a whopping thirty seconds per case. Dickey told the newspaper that he is disappointed with the Florida Legislature’s decision to stop paying retired judges to assist with the mounting backlog of judicial foreclosure cases. Dickey’ assistant says that many foreclosure cases that come across his desk are either dismissed or continued, making for quick work. She volunteered that, one day last October, Dickey processed one hundred twenty-five foreclosure cases per hour all day long.

If you are now thinking or have ever thought about buying an investment property, signs are positive that 2012 could be your year to dive into the market. With home values having dropped by a lot, America’s median list price has also dropped. When you couple this fact that interest rates are currently lower than they have ever been historically, you start to realize that opportunity is a’ knocking for anyone wanting to buy a house, and especially if you would like to buy the home to rent out.

You’ve probably heard me talking on this blog about my fanatical love for garage sales and yard sales, which I count as a great way to get rid of some stuff and make some money. If you have a lot of stuff that you are looking to thin out, you can roll out a weekend garage sale (or make a charitable donation, or trash the stuff, or give it away) without very much work. What happens, however, when you have a whole home full of things to clear out? This happens to folks most often when a family member passes away, and they are left as the executor of the estate. If you have ever been faced with this task, you know that “overwhelming” is not even really enough of a strong word to describe how onerous a task it is. You have two choices if you need to liquidate an estate: dig in and handle matters yourself, or hire professionals willing to help you do it painlessly and profitably.

You may have heard of a home away from home, but what about a home inside of a home? Catering to the growing demand for houses large enough to accommodate members of the extended family, builders are tinkering with American home designs en masse. Throughout the Great Recession there has been an increasing trend towards so-called multi-generational households. Let’s face it: for many, living on one’s own is just not feasible in this day and age. Some of these families consist of baby boomers and their adult children, dubbed “boomerang kids” who have been hit hard by job losses during the economic crash who have returned to the next.

Have you been riding out the recession as one of untold thousands of “foreclosure squatters” living in a house you haven’t paid for, because you know the bank will take years to evict you? Better start packing those bags. According to CNN Money, the signing of the $26 million mortgage settlement could mean that the foreclosure process is going to pick up some serious steam, since banks will be following a stricter set of guidelines when it comes to repossessing homes. The nation’s biggest five mortgage lenders – Ally Financial, Bank of America, Citibank, JPMorgan Chase, and Wells Fargo – agreed to the settlement to finally close the chapter of the “robo-signing” scandal that rocked the housing market, through which these banks allowed employees to sign off on thousands of foreclosure documents a month with little verification.

The bathroom might be the smallest room in the house, but there is no doubt that it’s a space that has meaning to us. There’s a reason that bathroom improvements rank right up there with kitchen renovations in terms of home repairs that can sell a home – a luxurious, well-appointed bathroom can make an otherwise up-in-the-air buyer weak at the knees.