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Posts Tagged ‘HELOC’

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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      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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      Borrowing Against The Value Of Your Home

      March 19th, 2009 by Matthew C. Keegan | 1 Comment | Filed in Consumer Financing, Credit Reports, Home Financing

      Home Equity Loan or Line of Credit?

      If you are a homeowner with very good or excellent credit and have significant equity built up in your home, you can use your house to fund your home improvement projects. Granted, home values have declined over the past year or so – in some cases sharply – leaving some owners with little equity left. Then again, if you have owned your home for many years you may no longer have a mortgage or owe less than half of what your home is worth.

      home contractorFor the homeowner whose job situation is precarious, finances in disarray or struggling to make ends meet, neither a home equity loan (HEL) or a home equity line of credit (HELOC) should be considered right now. You will want to get your finances in order first before pursuing anything that could put your home at risk.

      HEL v. HELOC

      Exactly what are the differences between HEL and HELOC?

      If you choose to go With a HEL, you will receive a lump sum of money and have a fixed monthly payment that you pay off over a predetermined time period. For example, if you borrow $50,000 you’ll get all of that money at one time and can use it as you want. You’ll have to pay your loan back in a certain amount of time and at a specific interest rate which can fluctuate if you choose an adjustable rate loan.

      A HELOC works a bit differently as it is treated as a type of revolving credit much like a credit card. You can withdraw funds as needed for up to a predetermined limit. Usually, there is a minimum payment due each month, with the option to pay off as much of the line as you want at any time. So if you are approved for a $50,000 line you only pay make payments on the portion of the amount borrowed.

      With either option, the amount you may borrow is based on several factors including your income, debts, the current value of your home, how much you still owe on your first mortgage and your credit history.

      Additional Loan Attributes

      Some more points to consider before choosing either option:

      • With a HEL and a HELOC you may have to pay an application fee or an annual fee and in some cases closing costs. However, some lenders will cover all or portion of these costs making it worthwhile to shop around.
      • With a HELOC you can draw on your funds for a certain amount of time, usually from five to twenty years before it is converted into a loan requiring a fixed monthly payment and loan term. From the start, an HEL has a set term which can be as long as thirty years.
      • With a HELOC you may be able to borrow up to 100% of the value of your home minus other debts (mortgage) against it. The days of allowing buyers to borrow above that amount are just about over, with few lenders willing to be exposed to that extent. Many HEL lenders will consider similar lending terms too.

      What To Do With The Money

      Naturally, taking out an HEL or HELOC means that you’ll want to put that money to work. Our homes are our greatest asset, therefore using those funds to cover needed repairs and updates makes a lot of sense.

      To that end, we’ll be covering a number of home improvement tips over the coming months on SayEducate.com, projects you can do yourself, farm out to a service contractor or both. Check out this bi-weekly tip to help you save money around the home.


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