Home Equity Ability
What could be the most important thing that nearly everyone wants to have in their lives? If you were to ask me, the most important thing that a person must posses is a house. I believe that everybody, even the single individuals, wants to possess a house of their own and call it a home someday. If you own a house, especially for men, it is likely that you just want a place of your own, or it is some sort of preparation to call it a home because the idea of getting married and raising a family are all in your mind. Whatever your reasons might be, owning a home is much more important among other things.
Since the market value of a home is continuously increasing, your home could be your best asset. In fact, more and more lenders are offering home equity plans for homeowners. The home equity loans and home equity line of credit are very interesting and tempting ways to borrow a very big amount of money in exchange of your house. Lenders will allow you to borrow a certain amount of money, which is relatively high, and your home will serve as collateral. Is that a wise deal?
Lenders are very confident in letting you borrow the amount of money you qualify for because you cant just carry your home and run away or hide it if you are not able to make the scheduled payment of your loan. Yes, home equity loans and home equity lines maybe the best option if you need a very big amount of money, but think it over a million times. You must always remember that if you cant make the payment as scheduled, it could mean the loss of your house.
Just to give you an idea as to how a home equity is computed and how much can you possibly borrow if you use your home as collateral let me give you an example. Lets say, the current value of your home is $ 200,000, and you still owe $ 100, 000 on mortgage, the difference between the value of your home and the amount you still owe on mortgage is called home equity. Given that:
Your home current value $ 200, 000.
The amount owed on mortgage $100, 000.
The home equity is $100, 000.
And to compute for the potential amount in which you can borrow whether for a home equity loan or home equity lines of credit, the lenders usually set a percentage of your home appraised value, let say 80 %.
Your home current value $200,000.
Percentage sty by lenders x 80 %.
Percentage appraised value = $ 160, 000.
Minus the amount owed on mortgage – $ 100, 000.
Your potential credit $ 60, 000 .
The actual amount of money that you may borrow will also depend on your ability to repay, debts, and other financial obligations. No matter how tempting the potential credit of your home equity can be, you should have a big and valid reason if you want to consider using your home equity. Most people want to use their home equity for big reasons like payment for college education, house renovation, or hospital bills.
Before you even think of using your home equity, you should weigh things over. How big is your need for money? Is it worth putting your house on the line? These are the things you should think over a million times before you put your home at risk.
Ability of using equity to finance down deposit on new home?
Hi Everyone.
I have a substantial amount of equity in one of my homes, and am looking to purchase a second home sometime in the summer. I do not have money for a down payment, however, I do have more than enough for closing costs. I was wondering if it would be advantageous to take out equity on the one home for the 20% down payment on the second home. Do mortgage companies frown upon this action, or is it encouraged? Would I get advantageous interest rates in this case, or similar rates as to doing 100% financing? Just so you know, the home I am looking to purchase is a duplex, however, it will be a primary residence. I know interest rates are generally higher for duplexes. Just a thought I had, wanted to know if it would be worthwhile to leverage the one homes equity to purchase the new home.
Thanks!
Hi,
I've checked income levels, and we (to be more specific, the loan will be between me and my brother) will qualify for the loan at a 7% rate (assuming 28% front load). Also, when I say substantial amount of equity, I mean 100%, I own the home outright, and the down payment won't come close to the 80% mark (more like 40%). Would it be better to get the loan on my current home before I finance? Or should I go to the lender, and ask them to evauluate both options.
Thanks for all of your help! Now I just have to sell the idea to my brother (he is a co-owner of the one home).
That is a fine idea that has been used by real estate investors for years.
References :
http://www.credit-yourself.com/real-estate.html
I just did that about seven months ago…except I went from a duplex to a single family home. The major advantage of using you equity to purchase more property is that you can avoid pmi with 20% down and conventional financing. The major disadvantage is that a home equity loan is fairly expensive. I borrowed 90k against my equity and it costs me almost $700 a month. I bought my new home through a bank and got approved before the home equity loan even hit my credit so they couldn't complain about it! If you think your duplex will cover the cost of the mortgage and the home equity loan than go for it! Otherwise you will be footing the bill for the second mortgage on your primary home. Good luck and hope this helps.
References :
You are exploring the concept of leverage. That is how investors succeed in the real estate world, but it is also a risk. Generally speaking, your rates will be lower with a 20% cash down-payment; which is how the lender will view it for the property you are proposing to purchase.
Now when you say substantial equity in the first home, just how much are we talking? If you leverage more than 80% of the value of that home then you will be paying higher interest rates on that loan.
Do your homework in order to get the best deal available. However, your proposal is tried and true.
Best of luck
References :
Realtor, Investor, http://www.buyhawkeye.com
Great question.
You are going to get the best rates if you are able to put the 20% down on the new 2nd home, however you really need to do a little evaluation and see if the interest rate on an equity line of credit on your primary is worth it or if a slightly higher rate for doing 95-100% financing is going to be better for you.
Your credit score, mortgage history, and income are going to dictate most of those factors.
If you can go full document then 100% is most likely not going to be that big of a rate hit. If your going stated on your income then you should put at LEAST 10% down on your 2nd home purchase.
Real Estate as you obviously know is all about leveraging your assets
You can find some calculators that may help you on http://www.fivestarsmortgage.com.
P.S. depending on where you are buying you should really try to get the seller to pay your closing costs. In almost every purchase I see happening lately the sellers are paying a portion of not all of the buyers closing costs.
References :