Getting a Home Equity Loan When Your Credit is Bad

Have you ever thought of taking out a home equity loan or line of credit? If you are facing a big expense – like college tuition or home repairs – and you own your home, a home equity loan might make sense. But you may also be worried about your credit score. You suspect that you have some history of bad credit – perhaps some late credit card payments or an unpaid student loan. You think that if you have bad credit, you can’t get a home equity loan. 

Home Equity Loans

What is a home equity loan? You own your own home and for ten years you’ve been paying your mortgage on time. During this period you have built up equity in your home, which means that you are a part owner together with your lender. If you bought your house ten years ago for 0,000 and your down payment was ,000, the amount of equity you have in your house is the down payment (,000) plus the principle you have paid (say, ,000); this equals ,000. But there is one more factor: the current appraised value of your home. For simplicity sake, let’s assume that even in this recession your home has held its value and is worth 0,000. 

In theory, you could access a portion of your ,000 equity for a second mortgage, a home equity loan, or line of credit. But what if you have bad credit?  

When you apply for a home equity loan, the lender will take many factors into consideration when determining how much to lend you and at what price. With bad credit, it may not be a question of whether or not you can get a home equity loan (if you own your home chances are good that you can) but how much it will cost you. 

A major factor in the lender’s decision is your credit history. Today there are three major credit reporting agencies. These are Equifax, Experian, and Trans Union. Under the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions (FACT) Act you are entitled to view your credit reports at no charge once a year. Do not contact the agencies directly; to learn about how to access your credit reports go to the website of the Federal Trade Commission at ftc.gov and click on “Consumer Protection.” 

The three credit bureaus most often use the FICO score system, which assigns each consumer a number rank between 300 and 850. Higher scores (above 700) are good. Lower scores (below 600) are bad. The lower your score, the less money you can borrow and the higher interest rate you will pay. 

What Can Affect Your Credit Score?

Many factors that seem obvious will affect your credit score, including missed or late credit card payments. But there are other things that can bring down your score, too. 

How often your credit history is accessed. That’s right: every time a potential lender checks your credit history, this fact becomes part of your record. If your credit records are being checked too often, lenders see this as a red flag. Why? Because it may mean that you are “shopping around” for credit and are being turned down. A lender may think that you are a high risk. 
A short credit file makes you less desirable. Some consumers (wisely, they think) refrain from using very much credit. They may have only one credit card, which they don’t use very often. This is fine until they try to access a bigger loan, such as a home equity loan. A lender may see this customer’s lack of credit history as a higher risk and charge more for the loan. 

If you want to get a home equity loan or line of credit, be aware that because of the current recession many lenders are tightening their requirements. Your bad credit may be a factor if you are denied. But you have rights; under federal law, if a lender takes adverse action against you (such as denying your application for credit or charging you a high interest rate), you are entitled to a free explanatory report. You must request your report within sixty days of the decision.

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Home Equity Loan Closing Cost Appeal

A home equity loan closing cost appeal usually carry a lower initial interest rate than a home equity loan, but its rate fluctuates according to the prime rate, so there is always more of an interest rate risk. Unlike a HEL, where your monthly payment is a set amount, a HELOC enables you to borrow funds as needed and repay as little as interest only each month.

 

When deciding between a Home Equity Loan against a Home Equity Line of Credit, first we need to determine what the money is being used for and how much money are we going to need. Generally, a HELOC (Home Equity Line of Credit) is a better choice for ongoing cash needs, such as college tuition payments or medical bills.

 

Home equity loan allows you to draw money whenever you need money, capped at a fixed limit. There is generally a minimum payment due each month, with the option to pay off as much of the line as you want. The two most popular types of home equity loans are called “open” and “closed.” The “open” loan or a line of credit sometimes called a HELOC.

 

In this loan usually the interest rate is variable tied to the prime rate and the term of the loan can range from five to thirty years. Because the rate is variable the payment amount is as well which might be problematic. Lenders often offer a special starting rate as an added enticement. The other type of loan is a “closed” loan where the amount is a fixed amount for a fixed period at a fixed rate with set payments so at the end of the term the loan is paid off much like a regular installment loan.

 

The rates and term of the loan are usually fixed but because the extra money is unsecured the rates are generally higher than a regular first or second mortgage rate but still lower than credit card rates. With a home equity loan, there are also closing costs that you need to take into account. This refers to the money paid at closing to the lender. It may include one or more of the following fees: a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, credit report charge and other costs assessed at conclusion.

 

One of the variations which have broad appeal is the 125 home equity loan so selected because the borrowers can get up to 125 % of the current combined loan to value (CLTV). This type of loan is mainly appealing to first time home buyers who may need to spend extra money on furniture, home improvements, landscaping, etc.

 

The extra money can be used for debt consolidation, medical expenses, or college tuition as well .There is such a wide variety of loans you can get using the equity in your home as collateral that it can be confusing. But if you do a little research you can find one that is just right for you and your needs.

Benefits of Fixed Rate Home Equity Loans

People take on home equity loans (second mortgage) for a variety of reasons. One of the most popular reasons for debt consolidation – they refinance revolving credit cards and pay off personal loans and variable rate loans to bankruptcy and avoid cash-flow increase. Sometimes a second mortgage provides for shorter periods for payment of debts. George Saenz, an accountant with Bank rate gives this example in his article, “Loan Consolidation: Yes!”

- Heloc

Suppose you have $ 25,000 inDebt you pay $ 500 to $ 600 per month, and to make the amount of debt has the same for a while now been. If you refinanced, which are in a four-year home equity loan at 7.23 percent of your monthly payment $ 601 and you would it had been worthwhile.

- Heloc

Second mortgage consistently offer lower interest rates than those of credit cards and unsecured personal loans, resulting in a lower monthly payments. The tax deductibility and low interest rates from a home-equity loans also make attractive. TheSavings from the consolidation of credit card debt to make this fixed rate home equity loans attract even more.

There are two types of home equity loans: Home equity installment) loans (salvation are fixed in the rule, interest-bearing loans and home equity lines of credit (HELOCs), variable-rate loans.

The rate home equity loan is a lump-sum loan, where you immediately begin payment of interest and principal payments. The variable-rate HELOC allows you to collect money as you need it andYou pay only the interest for several years (the draw) period, then later pay principal and interest during the repayment period. The HELOC will usually give you a lower introductory interest rate than fixed-rate loans, but change in general, the prices if the Fed increases or decreases the federal funds rate. The short-term interest rates are currently on the rise, which is why so many people consider converting their variable-rate home equity lines of credit for fixed-rateLoans.

Fixed rate home equity loans are for people who know well how much they need, why they are so popular for debt consolidation is. George Saenz says, “I recommend that if you are debt refinancing get a home equity loan and not as a home equity line of credit (HELOC).” Fixed rate loans have a stated interest rate that is not beyond the term of loan is not changed, while prices are on the floating rate loan to an index change and linked to an index rate changes. Thegreatest savings for fixed-rate loans can be seen over time, when to increase

http://www.heloc.pannipa.com/2009/11/08/benefits-of-fixed-rate-home-equity-loans/

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Six Key Aspects of a Home Equity Loan

Ever feel lost when people talk about subjects like a home equity loan? It certainly does sound something like what you would hear on a business news show. But for every homeowner or someone considering property purchase, home equity is an important concept to grasp. It really isn’t very complicated either. Therefore, piror to understanding a home equity loan, let’s first talk about home equity.

What is home equity?

Equity can simply be understood as the monetary value of something you own after you deduct the amount of outstanding loan you have on it. For example, if your house is worth 0,000 and you owe your finance company ,000, then the equity of your home would be 0,000. So basically, the more loans you clear on your home the greater equity it will have. A surge in the real estate market and prices of property also helps in adding on to your home equity.

What is a home equity loan?

Now that you have an idea of what a home equity is, let’s get into a home equity loan. Simply put, it is the process of taking a second mortgage on your home. For example, if your have recently bought a house for 0,000 on mortgage, a home equity loan will allow you to secure a second mortgage of 25% of your first mortgage, which would be ,000 in this case. Depending on the lender, one may even be given as much as 80% of the original mortgage for their second mortgage.

Six key aspects to consider

1. First of all, issue a home equity loan only if you must. It is always better to not have any additional loans than the one you already posses.

2. If you do feel you need to secure a home equity loan, then you will generally need to have a great credit score since this loan is mostly given to those who are considered “qualified borrowers,” i.e. those who have a good track record of paying back on time what they have borrowed.

3. Keep in mind that apart from the credit score, your home itself will also be on the line as collateral with the lender. So defaulting on your loan could result in losing your home.

4. One good advantage of a home equity loan is the fact that the interest rate is generally lower than those of credit cards. So if you do need to borrow money through a credit card for something large, then this would be a less expensive option. But make sure you do a proper comparison of the cost of borrowing money with other options that you might have.

5. The interest you pay on your home equity loan is also tax deductible, which can be a huge benefit when you are cash strapped. But there are limitations to this, so look into it carefully.

6. Shop around. Don’t jump into the first option you see on being issued a home equity loan. Find out how you can get the best interest rate (fixed or adjustable) and read the fine print on your withdrawal limit.

What are Home Equity Loans Good For?

Homeowners have seemingly limitless choices to tap in to the equity in their homes. Many folks choose to refinance for cash out at closing, others are looking also for the benefits of a lower interest rate on their loan and cash out for repairs, unexpected expenses and other of life’s little surprises.

A home equity loan is a secured loan where you borrow against the equity in your property. Even with poor credit, a home equity loan is not difficult to qualify for. This is because unlike a personal loan, the risk to the lender is not all that great. Your loan is secured by the equity (or owned value) in your home.

Home equity loans are most commonly used for the purpose of consolidating debt and eliminating high interest credit card loans. The biggest advantage to home equity loans is that you can pay off your debt at a low fixed rate over a set period of time. This is a major advantage over revolving lines of credit, such as credit cards.

Home equity financing is also useful for covering incidental expenses such as home repairs and maintenance. Have a child heading off to college? You can get a home equity loan to cover the cost of college. Are unexpected medical bills a problem? A home equity loan can be used to pay off medical bills at a fixed rate over a long term. As you can see, the uses for home equity financing are many.

Home equity financing is the same as taking out a second mortgage loan on your property. This also means that because the home equity loan is secured by your property, you can loose your home in the event of a default on the loan. It is for this reason that you should take home equity loans seriously and take care not to overextend yourself or strain your monthly budget.

Every situation is unique but in many cases home equity loans can be a benefit to your finances. They can also you harm if you overextend yourself. Whether or not a home equity loan is right for you is something only you can decide. If you do decide to seek a home equity loan, there are numerous resources available for you to compare offers and apply for the financing.

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