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The Best Way to Obtain a Home Equity Line of Credit

February 16th, 2010 by Matthew C. Keegan | 1 Comment | Filed in Consumer Financing, Home Financing

A home equity line of credit (HELOC) is type of revolving credit. When selecting a HELOC, your residence serves as collateral for your loan. If you have accumulated equity in your home and have a good credit rating, a HELOC can be easy to obtain. But first, you will want to get organized and create a strategy to help you secure financing through a financial institution.

Shop carefully for a line of credit.

Consult with your accountant. You may think that a particular, low-rate HELOC may be the most effective approach for you, nevertheless your accountant may not share your view. For some property owners the tax benefits of a HELOC may not be advantageous while a home equity loan (HEL) or other funding arrangement may be worthwhile over time. Talk to your financial adviser to come up with a borrowing strategy with the best tax implications.

Evaluate your needs. Your financial adviser will probably persuade you to borrow only what you may need. What this means is creating a spending plan outlining how much money to access. Even though a HELOC does not require you to tap all of your available funds, you may want to consider a line only large enough to pay for the money necessary for refurbishments or other work you need to have done on your house.

Check around for lines of credit. Your financial institution and your mortgage broker are two resources to seek out your HELOC. You will also want to examine their particular rates and compare those with what other lenders have to offer which means broadening your search accordingly. The majority of lines of credit offer adjustable interest rates; compare those rates along with fees and closing costs to figure out the best HELOC for you. Have potential lenders explain the terms of their contracts; negotiate for a lower rate or fees wherever possible.

Apply for a HELOC. Once you have found the HELOC you want, then apply for it. Your lender will obtain your credit information before granting approval and may ask for other documentation prior to closing.

Close on your credit line. Once you are satisfied with the terms of your line of credit, then arrange with your lender to close the deal. Consult with your financial adviser as needed.

Considerations

The Truth in Lending Act (TLA) may allow you to cancel your HELOC within three business days if you change your mind. Your contract should explain the procedure for invoking a rescission.

Caution

Be careful of lines of credit with an initial teaser rate. You may pay more for your HELOC over the long term once the rate resets.

Resources

The Federal Reserve Board: What You Should Know About Home Equity Lines of Credit

    Bankrate: 4 steps to take before borrowing


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      Should You Tap Your Home’s Equity?

      January 22nd, 2010 by Matthew C. Keegan | 2 Comments | Filed in Home Financing

      Among the many inaccuracies being doled out by the media these days is news about the housing market.

      home financingCertainly, there are many homeowners who are in trouble, likely to lose their homes to foreclosure or suffer significant loss to the value of their homes. But there are many millions of homeowners who are riding out stormy seas with some already coming out on the other side in improved shape. Those people are likely to help lead the recovery effort provided that Congress and the Obama administration back away from trillions of dollars in promised new spending.

      But this article is not about politics. What it is about is tapping your home equity, money you have built up in your home after many years of ownership and market value increases.

      Responsible Consumer Borrowing

      Responsible consumers know that home equity should be used to finance important things in their lives including a home renovation project, fund college tuition, pay off medical bills, even debt consolidation. Of course, putting money out for anything beyond what would benefit the home directly has some analysts unnerved, but when used wisely it can be a smart decision.

      There are essentially four options for most homeowners when it comes to taking out equity. Three are generally available to all homeowners while a fourth depends a lot on your age.

      1. Home equity loans (HEL) – Sometimes maligned and occasionally abused, a home equity loan allows you to tap the equity in your home, receiving a loan with your home secured as collateral. In most cases a HEL is tax deductible and, if you sell your home, you will be required to pay off your loan along with your first mortgage.

      2. Home equity line of credit (HELOC) – With your home secured as collateral, a credit line can sometimes be advantageous for the homeowner who wants a ready supply of cash available, but who plans to tap the line only when needed. A HELOC can be accessed for a number of years, and you are responsible for paying back only what you have borrowed. Your HELOC should be tax deductible.

      3. Cash-out financing – This kind of loan describes when a homeowner decides to refinance his mortgage to obtain a new loan. That new loan exceeds the amount owed on the current loan with those extra monies available for whatever purposes. The advantage here is that there is only one loan involved and it is tax deductible.

      4. Reverse mortgage. For senior citizens who want to stay in their homes, a reverse mortgage can allow them to do so especially if they have build up significant equity over the years. No payments are due until the borrower moves, dies, or if the property is sold. The final payment can not exceed the proceeds from the sale of the home, freeing heirs from further obligation. Work with an accountant to discuss your options as well as tax implications.

      What type of loan is right for you? Ask your financial advisor who can discuss tax advantages as well as help you map out a repayment plan.


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      Return of the HELOC?

      November 18th, 2009 by Matthew C. Keegan | 2 Comments | Filed in Home Financing

      Pity the poor HELOC. Ostracized by some as demonstrating what is wrong with the American consumer, the HELOC fell out of fashion when credit tightened and the financial markets collapsed in 2008.

      But, much like the fabled phoenix which rose from the ashes, the HELOC is back though not looking quite the same as it did before – yes, its wings have been singed, if not a bit clipped.

      home loanHELOC Defined

      Oh, what exactly is a HELOC you ask? That would be Home Equity Line Of Credit, a method for consumers to borrow money off of the value of their homes. Popularized throughout much of the past decade, HELOCs allowed homeowners to reap the rewards of their rapidly increasing home values by borrowing money to finance $100,000 kitchen renovations, enjoy expensive vacations, pay for their children’s college education, and more.

      Critics hated HELOCs, blaming these types of loans with helping to push up the price of housing, encouraging predatory lenders to jump in, and putting millions of homeowners in a vulnerable position, with many people losing their homes when property values plummeted and jobs were lost.

      Careless Consumers?

      And you know what? The critics do have a point: a number of people were very careless, borrowing more money then they needed and foolishly spending it on stuff they didn’t need. Still, a HELOC does offer a number of benefits which is why they’re still being written by lenders and grabbed by eligible consumers.

      If you’re considering a HELOC, some things HAVE changed over the past few years including:

      You must have very good credit – Even if you have a sizable amount of equity in your home (and for many homeowners this no longer holds true), expect lenders to carefully look at your credit history and only offer you a HELOC if your credit score is very good.

      You can’t borrow the full amount – Previously, many lenders allowed homeowners to borrow the full amount of equity in their homes. This means that if the consumer had a house valued at $300,000 and owed $220,000 on the first mortgage, then a lender would consider a $80,000 line, in some cases even more than the home’s worth. Today, you’ll be lucky to get $20,000 because few lenders are willing to let you borrow more than 80% of the value of your home.

      Emergency Line

      Perhaps one of the best reasons for homeowners to consider a HELOC is this one – an available line of credit to handle life’s emergencies. The last two years offered many challenges to Americans, certain thing which even worsened when funds dried up. By having access to a HELOC and using it wisely, you can borrow funds when needed to cover a crisis.

      Adv. – Have you considered a HELOC? Carefully weigh your options before securing a line. Rates are low, lenders are willing and a line could help you complete important renovations to your home, including replacing your roof, windows and doors, add a room, and more. Get a HELOC quote today!


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      Self Employed? Home Loans For You!

      November 2nd, 2009 by Matthew C. Keegan | 1 Comment | Filed in Home Financing

      For the self employed, you know one important way to hold down your tax obligations is to find as many deductibles as possible. After all, you work hard — why allow Uncle Sam to take more money from you then “he” should? One way to limit your pay out is to buy a home.

      Loan Documentation

      fall leavesUnfortunately, one of the more difficult things for you to do is to document your income, something that most lenders required in today’s economic environment. A few years back, lenders would have issued no-documentation mortgages, but those practices died with the mortgage collapse of 2008.

      Home loan brokers will want you to substantiate your income in a number of different ways. If you pay yourself, then you can show your last two or three pay stubs as well as W2 forms for the past two years. However, that may not be possible for some self employed people particularly if you take money out of your business as a disbursement, not salary.

      Financial Information

      If that’s your situation, then you understand that you’ll need to work with a mortgage broker who understands the unique needs of the self employed. Some lenders are fine with less documentation, however they are likely to want you to provide some financial details about yourself including the following:

      • Your checking and savings account statements for at least the last three months.
      • Copies of your federal and state income tax returns for the past two or three years.
      • A copy of your business’s articles of incorporation in addition to business checking account statements.

      Don’t worry about being rejected, especially if you have very good credit. Lenders are in the business of lending people money and they can only make money off of you if you borrow from them. Consequently, every loan applicant is treated as a possible client and lenders will bend over backwards to try to find a way for you.

      Credit Reports

      Keep in mind that your mortgage lender will obtain all three copies of your credit reports and credit scores from Experian, Equifax and Trans Union to help them make their determination. You may be asked to come up with a larger down payment, particularly if your income fluctuates. That doesn’t mean you won’t be approved for a home loan, rather that the lender wants you to assume a greater portion of the risk.

      Finally, if you are not getting the satisfaction you expect, try a different mortgage broker. Some brokers are very tight with their lending requirements while others are cautious, but still willing to take a risk on you if you have a track record of very good credit.

      Adv. – Mortgage interest rates remain near historic lows.  Whether buying new and refinancing your current home, you’ll want to take advantage of low rates before inflation kicks in. Please stop by PickMyMortgage.com or SayLending.com to find the best home financing options available.


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