The economic collapse took a toll on the housing market, causing prices to fall and lenders to lock up their pocketbooks, putting the buyer’s dream of owning their first home out of reach. Since this time of recession and depression, the housing market has risen; lenders are now allowing borrowers to open lines of credit and take out home equity loans and the return of home equity lending is a comeback of sorts. If you are interested in pursuing a home equity loan, here are some things to consider:
You Need Equity – It is common to have substantial loan-to-value ratio, which is the proportion of remaining balance on your loan compared to the value of your home or property. Most lenders require that homeowners own twenty percent of their home before applying for a home equity loan.
Two Types – There are two different types of home equity loans to choose from. First, is the standard home equity loan where you borrow one lump sum. This type of loan is ideal for those are seeking one major expense such as repairing a crack in the home’s foundation. Paid over a predetermined length of time, a standard home equity loan does require closing costs however they are much less than a full mortgage.
A home equity line of credit or HELOC is where you borrow smaller sums of money as needed up to a fixed, predetermined amount. You can borrow as you wish and only pay interest on what you borrow. This option is great for borrowers who are supporting a small start-up business or a six month long home improvement project.
It’s Still a Mortgage – Even though it is a home equity loan, it is still considered a type of mortgage. This can have advantages though. The interest you pay on your home equity loan or line of credit is usually tax deductible. Second, the rates on a line of credit or home equity loan tend to be lower than unsecured loans because it is a mortgage secured by your home.
Now is the best time to enter the housing market and we can help! To learn more about our services and how we can help you, visit our website!