March 5, 2016
Home Equity Loans
Home equity loans are so named because they permit homeowners to the equity of their property without having to sell it. The equity of a home is calculated by deducting what is owed for the home from its market value. Home equity loans were once called 2nd (or even 3rd) mortgages. Home equity increases in two ways. The first is mortgage payments that reduce the amount that you owe for the home and the second is market appreciation over time that increases the gross value of the property you own.
Home equity loans carry low interest rates because all moneylenders view this as a very stable form of investment on their part. Even in times of a struggling economy, there is always the hope that eventually the prices will rise again. Mortgage lenders also have access to agencies like the Federal National Mortgage Agency that help to reduce the risk by moving it away from the lender. However, note that while the interest rate on home equity loans is lower than other types of loans, it is still higher when compared to the first mortgage. It is also possible to convert home equity loans into first mortgages through refinancing.
Reverse mortgages are similar to home equity loans as they to provide homeowners with the cash value of the equity. The difference is that home equity loans are paid out in a lump sum while reverse mortgages are paid out monthly or quarterly. Senior people who would like some extra cash use reverse mortgages but they do not wish to sell their home. In such a case, upon the death of the individual the estate sells the home or the title passes on to the mortgage lender who can sell that property. More details in our post here: http://www.freehomesfinder.com/getting-a-home-loan-after-declaring-bankruptcy/
In case you are interested in home equity loans but the equity value of your home is too low right now then you can always go for the 125% equity home loan.
The 125% equity home loan is like a 2nd mortgage that permits you to take a loan of up to 25% more than the value of your home. This means that if your home is valued at $200,000 and the pending mortgage you have to repay is also $200,000, then you can still take a loan of $50,000.
Many lenders offer 125% home equity loans, and you can easily find them on the Internet. Note that lenders will have their qualifying criteria and loan terms. Most of your options will depend on your credit score. This is not as general as good or bad credit score but there will be limitations like you must have a minimum credit score of so much. Credit score will also decide the maximum amount of 125% home equity loans that you are offered.
Most of the time you will not be required to get a property appraisal for 125% home equity loans. Also, lenders will use the purchasing cost of the home as its equity value rather than current value if you have been living there for less than a year.