Question : What is a home equity loan and what is the process to applying/being accepted for one?
I paid roughly $90,000 for my home. It was a TLC home and I've fixed it up in the past 9 years dramatically. New roof, new walls, siding, porch, heating system, well etc. My home and property was valued at $275,000 last year. Does equity play a part in this. Am I eligable for an equity loan? I don't want to go into it without fully understanding what it is--I also don't want to go to my banker with stupid questions....Another thing. Im looking to build my own home--hence the loan inquisition.
- asked by Phoenix
All Answers:
Answer #1
An equity loan is a loan against the difference inyour home's value and any outstanding liens youcurrently have (like your 1st mortgage). The newequity loan takes a 2nd lien position to your 1stmortgage and is sometimes called a secondmortgage, which is the same as an equity loan.Somebanks and direct lenders require "seasoning" whichmeans you have to own your home for sometimes 12months before you can use the new value. Therefore I recommend you seek the assistance of amortgage broker. Brokers work with severaldifferent lenders and will have options availableto you right now. They can also explain thevarious types of equity loans available and canoffer rates that are the same or lower than localbanks. They also have several "no-cost" loans aswell.Since you're looking to build a home, you maynot need all your equity out at once. I recommendan equity line of credit where you can borrowerand pay for only what you need when you need it. Equity lines can be fixed or variable, haveinterest-only payments or include principalpayments. Again, talk to your local broker to getall the details.
- answered by Mortgagemom
Answer #2
Let's say you owe around $70K for your house & itnow appraises for $275K, you can "cash out" someof your equity.Equity is the difference betweenwhat you owe & what the home is worth or appraisedat now.There are many programs for "cashing out"equity. You could get up to 100% of your equityout. I do not suggest this &your interest rate onyour equity loan will be a lot higher.You couldcash out say 80%, based on my #'s above that wouldtotal about $164,000.& you could use this moneytowards a down payment & for construction costswith the home you're interested in building.Youwant to make sure you're using your money with thebest programs. Talk to a lender who will show youthe pros & cons. Don't use all of your liquidcash to sink into building a home, leverage,leverage, leverage & talk to the lender about a"Construction to Perm" loan. (Construction tofinished product)
- answered by Emily_Knell
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