Before considering a home equity loan or line of credit, it’s important to understand the definition of home equity and what it means for your loan. In its simplest terms, equity is defined as the difference between the current value of your home and how much is left on your mortgage.
Let’s say your house has increased in value by $75,000 since you first bought it. If you haven’t paid any of your mortgage principal down (which you probably have unless you have an interest-only loan), this increase in value represents $75,000 which you can borrow against.
Similarly, if you have paid off $15,000 in principal from your mortgage, this is also home equity. Remember, however, that mortgage payments consist of both interest and principal and in the early years of your mortgage the monthly payments is mostly interest. So if you have not had your mortgage very long you may not have paid down as much principal as you might expect. Check your monthly mortgage statement to see how much principal has been paid.
So in this example, if the price of your home has increased by $75,000 and you have paid off $15,000 in mortgage principal, you have built up $90,000 in home equity. This is the definition of home equity in action.
However, that doesn’t mean you can go to a bank for a $90,000 loan. The amount you can borrow is determined by what is known as the “loan-to-value” ratio. The loan-to-value ratio tells you how much of your home equity you can tap into.
Since banks need to protect themselves, they won’t let you use all the equity you may have available in your house. Banks examine your annual income, credit rating, and the amount of your outstanding debt when determining how much to lend you. Most lenders won’t go higher than 80-85% of the appraised value of your house minus what’s left on your first mortgage.
By: J. Nicholson
Posts Tagged Banks
When a venture capitalist takes the decision of investing in a small company, he or she does so after carefully studying the business plan for a period of up to 3 years. Generally the offers that enter this process are those that are different and innovative with a high potential for success. Venture capital funds follow a different set of rules than those established by banks. For instance, a venture capitalist will give great importance to the documents presented, the experience and profile of the entrepreneur, the idea of the business and the product it will offer to the market, and of course its innovative qualities.
Venture capital is obtained after going through a complex process. Depending on the kind of venture capital we are talking about, the investor may choose to buy shares (ordinary or preferred), or agree to receive advances on their bank accounts.
Venture capital is not intended to remain indefinitely invested in the company. Its intervention should be ad hoc and limited in time. The output can be achieved by: reduction or amortization of capital, the repurchase of securities by original partners at an agreed price, the resale of securities to a financial or industrial group, and by the sale at a capital development.
The capital gains that the venture capitalists obtain come essentially from the sale value of the shares they bought. The risks they take are: never being able to sell the shares, or losing everything if the company disappears.
You may be wondering, who are these investors? Well, venture capital can be given by angel investors, venture capital companies, or venture capital funds that help small business that have innovative or different ideas.
We present you here a list of factors that venture capitalists will take into account when choosing a company:
For investors what the company does and how it does it is important. They will want to know whether the business produces, creates, develops or recovers.
Status of the capital investment: public, semi public or private. The criteria for entry to the capital of a company can vary depending on the nature of the company that owns the fund.
Minimum and maximum amount granted: there is no need to contact a speaker funds from 1million Euros while your need for investment is estimated at 200,000.
The areas of funding are particularly important to venture capitalists because some may look for specific areas: technology, innovation, etc. As well, as if coverage is requested for a small or large geographic area.
By: Wade Henderson
When you have a home in California, you may consider it as a great asset to use in getting a home equity loan for small investment moves or emergency purposes. A home equity loan basically will require you to put your own home up as security to getting the loan amount that you need.
This requires the bank or lending firm to study your FICO score and credit history; appraise your home value to make sure it can cover the amount that you borrow in case you default on payments; and looking at other factors that will show that your loan payback is guaranteed, such as your employment history and income.
Banks and lending houses sometimes consider a home equity loan to be a high risk venture which is why interest rates tend to be higher on these types of loans. Even borrowers consider such a home loan as a great risk since they are risking losing their homes in the event they default on loan payments. Which is why it is important that borrowers study the process and information about equity home loans carefully first before fully deciding whether or not they are ready to take on this kind of loan with specific conditions.
Before taking out a home equity loan, it is important that the borrower knows all that is involved in making the loan. It is always vital to know what interest rates are available for the borrower’s situation and what rates are affordable for the borrower. It is also imperative that the borrower study the loan terms and mortgage payments (of fixed or variable interest rates) before making a well-informed decision that they will really push through in taking out a home equity loan.
By: Elija James