A refinance with cash back from your home’s equity is not a phrase you hear much of nowadays due to not a lot of folks or locations gaining in appreciation. It is vital to understand exactly what the term “home equity” actually means.
As an example, you own a house and it is worth $150,000 from a professional appraiser report or the local realtor ran some comparable property sales for you. The debt owed on the property is just $50,000. As a result, the cash you have available in your home is $100,000; the difference between the principal mortgage balance owed and the current value of the property. So you know you have some value in your property and now want a second loan on your home.
What is better, a Home Equity Line of Credit (LOC) or a Home Equity Loan?
The attractive part about fixed rate equity loans compared to a line of credit is that it can be used for tax write-offs, features below market interest rates and longer loan repayment periods. Therefore, equity loans which have a fixed rate have some benefits right from the get-go.
It is important to understand that it is a second mortgage or lien on your property. Similar to your first mortgage loan, when you accept an equity loan you will normally have terms that give you a fixed interest rate, and a repayment period ranging from 10 to 20 years. An equity line of credit is different in that the interest rate may vary over time and depending when you choose to use the proceeds from the credit line, the terms will begin. The choice is a difficult one when choosing a “Line of Credit” or “Home Equity Loan” due to your individual needs at that time.
In general, people pick a fixed rate home equity loan for costs and fees that are not recurring like a home improvement job on the home and a line of credit is best used for recurring expenses.
Ray Heinson is an investor in real estate and suggest these resources for Fixed Rate Home Equity Loans and to find the Lowest Rate Mortgages from trusted lenders in your area.
Home Equity Loan FAQ:
Question: Can my wife take a home equity loan for personal use on a jointly owned home without my consent?
My wife earns more money than me. The home loan is in her name but the home title is in our joint names. Can she take a home equity loan without my consent?
Answer: If your home deed is in both your names, then no, she cannot take out a loan in only her name without your consent. She can only take it out in only her name WITH your consent legally. If your mortgage company has done this then they did something incredibly illegal. You need to call the mortgage company on this.
Question: What exactly is a home equity loan and can I still get one with bad credit?
I do own my own home but am still paying off my mortgage. My son needs more money for college and we’ve tapped out on student loans and my credit cards are all maxed. I was wondering what I could do and thought that a home equity loan with bad credit might be an option. I don’t know if it’s a good idea though.
Answer: When you take out a home equity loan, you are basically borrowing money and putting up your house’s equity as collateral. It’s like any other loan but this kind states that the lender can take your home, in very plain terms, should you default on your loan.
When you’re looking for home equity loans, bad credit shouldn’t stop lenders from giving one to you. It doesn’t sound like you’re in too good financial standings so make sure that you will be able to pay back the loan because losing your home would not make your situation any better. I sincerely recommend you spend at least a day budgeting out the next few years of your life in preparation for this new loan. On the bright side, it will be a much better lending rate than other high interest rates in which only your credit is offered as collateral, but the stakes are higher for failing to pay.
Question: What is better to get a home equity loan or a line of credit and what is the difference between the two?
I’m trying to consolidate some bills and I am wondering what is a better type of loan?
Answer: A home equity loan is where the bank loans you money in a lump sum at a predetermined interest rate. You pay the back loan according to an amortization schedule. The collateral for the home equity loan is your home. This means that if you default, they can foreclose on your home.
A line of credit means you can borrow money continuously and pay it back continuously up to the limit. The collateral for the line of credit can be anything. It can be your home or it can be your car, or anything you and the bank agree to.
As far as which is better, check the interest rates for a home equity loan and any loan initiation fees. Which will likely charge less interest, fees, and points?
Question: If there are two people owning a house can just one of them sign for a home equity loan?
Answer: No. If both people are on the title to the home…both people must sign certain papers from the lender.
Question: How soon can we take out a home equity loan?
My husband and I are in the process of buying a house.. we were told by our realtor and mortgage broker that the house appraised for 30k more then what we are paying for it.
If this is true and we buy the house would we be able to take out an equity loan on the house as soon as we buy it since the house is worth more then we are paying?
Answer: Not in the least. The appraisal for your mortgage has nothing to do with another appraisal for a potential home equity loan. The appraisal values may be entirely different, and in this market, you won’t be allowed to take out anywhere near close to all of ‘your equity’. The market is simply too unstable right now.
Question: If you have a Home Equity Loan, Can you owner finance if you sell the house?
I know the loan is a lien. I know if I were to sell it out right, I could just pay off the lien. But, What about owner finance? Is this legal?
Answer: You are the equitable owner of the home so you may sell it. KEEP in mind your note may state that any sale of the home will accelerate the note; meaning it is all due and payable. Thus, it might be better to only offer a lease-option on the house-thus not changing the ownership of the home. Depending on the terms, a lease-option can be the same “in effect” as a land contract.
Question: If I take out a Home Equity loan, will it be considered as income on my taxes?
Answer: The proceeds of a loan are never included in income UNLESS you default on the loan AND the lender forgives the unpaid balance. The amount forgiven is considered Cancellation of Debt income.
Question: Would refinancing our home to a lower rate enable us to get cash out?
We just purchased our first home back in March at a 30yr fixed 5% interest rate. It is an FHA insured loan and we are eligible for a “streamline” if the interest rates drop below our 5%. If the rates do drop below 5% over the next couple of months, would we be able to get cash with the new refinance?
Answer: Usually a refinance is possible for the 80% value of the home. For example if the home is worth $200k you could refinance for $160k and cash out the amount between the current loan balance and the financed amount.
It would be easier and incur fewer fees to do a HELOC, for such a small dollar amount.
You might have only put 3.5% down if you had an FHA loan, so check with your lender for guidance on this.