Most people with bad credit do not realize that if they own their own home and are paying off a mortgage, they can qualify for a home equity loan. Even with bad credit, a home equity loan is a possibility, because the home itself is collateral. If you default on the payments, you will lose your home, just as you will by not making your mortgage payments. As long as you have been making every effort to keep the payments on your home up to date, most lenders will approve a loan based on the equity you have built up over time.
You do need to have 20 percent or more of your mortgage paid off. If this fits your situation, even though you have bad credit by not making other payments on time or by missing them altogether, with your bad credit, a home equity loan is possible. You also have to provide proof of your income and ownership of the home. The lender will also require an appraisal to determine the exact value of your home and thereby determine the amount of equity you have. The equity is the difference in what you owe on your home and the amount of money you would get if you sold it.
If you have bad credit, a home equity loan would be about 80% of the equity. Although there are lenders who will give loans for 125 percent of the equity, if you have bad credit, it is not likely that you would qualify for this larger amount. The lender will also want to know how you plan to spend the money. If your answer is that you want to consolidate your debts and make improvements to your home, then the chances are high that you will be approved.
With bad credit, home equity loan lenders want to make sure you will repay the money. With the bad credit rating that you have, they are taking a risk lending you a large amount of money. Therefore, the interest rate you pay on the loan will be higher. There are closing costs associated with getting this type of loan, but they are not as high as getting a regular mortgage. Just like with getting a mortgage, you can have these costs included in the loan, so you dont have to come up with money up front.
There are many lenders with an online presence where you can apply from home. It is best that you apply to several lenders and then you can compare the rates, terms offered and the payment amounts. By applying to several lenders over the space of a few days won’t damage your credit record. Any creditors who check your record will see that you are checking out which lender can give you the best deal. Using the money from the home equity loan to pay off your outstanding debts is a good idea. When you make your payments on the loan on time, your credit rating will start to rise. You will not notice the difference immediately, but after six months or a year, there will be a significant difference.
Posts Tagged ‘Mortgage Payments’
Home Equity Loans Versus HELOCS and a Personal Loan
November 13th, 2009In this article, we’ll cover the benefits and disadvantages of home equity loans, home equity lines of credit (HELOCs) and personal loans. Whether you’re looking for funds to finance a major expense or simply pay down consumer debt, this article can help you decide what type of financing is best for you.
Home Equity Loan
* Best for: Major, unexpected expenses or large investments.
* Not for: Ongoing or smaller expenses.
How it works: A home equity loan is like a mortgage – the borrower is given a lump sum of money up front and begins paying interest and principal payments right away to work off the debt. The amount of the loan extended to the borrower is based on how much equity has increased in the home after appreciation and mortgage payments.
* Pro: Home equity loans typically offer a lower, fixed interest rate than HELOCs and personal loans. This benefits the borrower over the term of the loan as well as in the short term.
* Con: Borrowers have to pay interest on the full balance right away.
Home Equity Line of Credit (HELOC)
* Best for: Ongoing expenses like major renovations, college tuition or having a baby.
* Not for: Single, major expenses.
How it works: A home equity line of credit is secured by the equity in your home, and you can draw on it as you would using a credit card or savings account. Typically, the rate is adjustable – meaning it can be changed periodically depending on financial market trends – and you’ll make interest payments on what you borrow until the term of the line of credit is over.
* Pro: You only pay for what you borrow, and these loans are often easier to qualify for and faster to obtain than home equity loans.
* Con: The interest rate is adjustable and often higher than a home equity loan. When shopping for a home equity line of credit, look for a low permanent rate.
Personal Loan
* Best for: Small single expenses like a new car or small business investment.
* Not for: Ongoing living costs, major projects like home renovations.
How it works: A personal loan is a one that is offered by the lending institution and is often secured by the piece of equipment (e.g. a car) or property (e.g. business) that you’re using the loan to purchase. Typically, personal loans are smaller and can often be obtained in the form of a line of credit.
* Pro: Simple application process without sacrificing home equity or risking the home itself.
* Con: Without the security of home equity, the interest rates on a personal loan are often higher, so it is advantageous to pay off the loan as quickly as possible.
In short, whether you obtain a home equity loan, a HELOC or a personal loan will depend on why you need to borrow the funds, the kind of interest rates you can afford and your own current financial situation.
Remember, always shop around for the lowest interest rate! Doing so can save you hundreds – if not thousands – of dollars over the life of the loan.
By: Ray Tolley
Home Equity Loans: a Flexible Option to Cater All Your Needs
November 5th, 2009
It really feels great to have a house of your own. It not only gets added up in your assets but can also become an excellent source of credit when you need it the most. In other words, your home can turn out to be a great source of money when you fall in urgent need of funds. This has been made possible with the help of a home equity loan.
Home equity is the ownership value tied up in a home or a property which estimates the current market value of the house. This amount does not include any remaining mortgage payments. Thus, home equity is calculated by deducting the unpaid balance of the mortgage and any outstanding debt over the home from the home’s actual market value.
The home loans are categorized in two segments- the standard Home Equity Loans and the home equity line of credit. The standard home equity loan offers a debtor with a particular amount of money that has a fixed interest rate and payments. These loans have to be paid in a fixed time period. These loans offer a larger loan amount as its borrowers are allowed to re-borrow the loan amount that they had already paid in the past.
A home equity loan is always secured in nature as it requires you to pledge your homes’ equity as collateral. These loans offer low interest rate, help you become debt free, allow you to borrow up to 100% of your home’s value and the loan payments usually come with certain tax advantages.
The value of equity can be used for various purposes. These include availing loan and to invest for getting a high interest rate. Borrowers may use this loan amount for making home improvements, for college tuition or for things like investing in business ventures like purchasing additional property. Thus, a home equity loan is an alluring option for all those homeowners who require quick cash for any of their urgent needs.
By: George Kane
