Equity Finance » Home Equity Lines Of Credit

Home Equity Lines Of Credit Are Sometimes Not The Answer

admin — Sat, 19 Sep 2009 19:25:56 +0000

It is true that homeowners often have the upper hand when it comes to obtaining finance. Sometimes, not even a good credit score and a good credit history is needed to get a loan with fairly good terms, specially if you are using your home as a security for this loan. Nearly any type of finance is available for homeowners, the terms will depend on the applicant’s credit rating, but it will still finance available for those seeking it. The tricky part will usually be choosing the appropriate loan according to your particular situation.

If you are needing funding I am sure you must be having a hard time deciding on what type of loan is best for you. Doing research on all of the available loan options can be very tiring and can take up a lot of time, specially if you do not have a clear idea of what you want yet, but it will be extremely worth it. Choosing the correct loan type will be the first step towards a successful loan process which will hopefully not only improve your credit but also provide you with the money you are in need of.

Here is some crucial information on a particular loan type you should look into: the home equity line of credit. Read on!

Home Equity Lines Of Credit: The Basics

Being a homeowner, you might be very familiar with the term “equity” and with what it entails. If not, I will highly recommend you do a thorough research on this topic before reading this article, or any other article for that matter. But specially before you apply for finance.

Going what to what concerns us, I will briefly explain the basics on home equity lines of credit. This type of loan offers borrowers the great terms of a home equity loan plus the flexibility of a revolving credit account. The borrower will be able to withdraw as much money as he needs without going over the established limit and once he repays it, he will be able to withdraw money again. Someone taking out this type of loan will be able to put the borrowed money to any use as there are no known restrictions related to this topic.

Usual terms on equity lines of credit vary depending on each particular lender and on the credit situation of each borrower, but they are usually very favorable. The interest rate the consumer pays on this loan depends exclusively on the withdrawn amount and it is generally tax deductible, this feature poses a major advantage over other loan types.

When Not To Resort To Equity Lines Of Credit

As fantastic as this financial product might be, sometimes it is just not the answer to your prayers. There are some particular situations which could best be resolved by other means.

* Consolidate credit card debt: if you are thinking of using the money you withdraw from your HELOC for this purpose, you had better think twice. It might be possible for you to transfer the balance on your existing credit card to a 0% interest rate card and thus obtain more benefits.

* Second mortgage: as the interest rate on a HELOC might fluctuate, you will benefit more from a regular loan which will protect you against such situations.

* Shopping: this is definitely a bad idea. Even though this financial product works more or less like a credit card, it will be wiser to use your credit card to purchase objects as your home is not on the line.

By: Sarah Dinkins

Home Equity Loans Explained

admin — Tue, 08 Sep 2009 20:47:36 +0000

Home equity loans are fixed rate home loans that allow you to tap into the money (equity) you’ve already invested in your home to finance debts or other purposes at a lower interest rate than most revolving credit options.

With house valuations increasing considerably over the last 10 years many UK homeowners are unaware of equity loans as a way of raising finance.

For example if you are a homeowner with a house valued at £300,000 and you have an outstanding mortgage of say £100,000 you can use the difference of £200,000 as equity to take out a loan. A Home Equity Loan can be really useful if your existing mortgage lender will apply a redemption penalty if you wish to change your current mortgage. If you don’t want to pay this penalty a remortgage will not be possible so a home equity loan, which is independent of your original mortgage company, is a viable option.

Taking out a home equity loan online from is a much better option than selling your home to get the money. If you sell your home, you will be left with a lump sum of cash after paying off your mortgage. A home equity loan allows you to get that cash without selling your home.

One of the main benefits of the home equity loan which sets it apart from other loans is with this kind of loan the interest rate is likely to be lower (if not the best rate loan) as the lender has the guarantee that you can pay the loan back because of the equity in your property.

Although a home equity loan has many benefits you should also be cautious before taking out such a loan. Because it is still a secured loan with the property as collateral, a Home Equity Loan generally has lower interest rates. For the same reason, Home Equity Loans can be risky, because if you default on payments then you put the property at risk of foreclosure. The homeowner must also be prepared to pay off the loan balance when the house is sold.

Some lenders have stopped offering home-equity lines of credit and home-equity loans altogether, even to borrowers with good credit. And lenders that still offer these types of loans are being a lot more selective. The lenders that have cut back on home-equity loans and credit lines are mainly those that raise money by selling the loans to investors. And since the recent issues with sub-prime loans the lenders are being extra cautious about offering these types of loans.

Conclusion

An equity loan may not always be the best solution to all of your financial problems. However a home equity loan can become an important part of short-term financial planning. And, once the loan is paid, you’ll have the satisfaction of knowing that you’ve once again proven your credit worthiness.

By: Paul Hockney

Home Equity Line Loan Help

admin — Mon, 07 Sep 2009 04:32:26 +0000

With the recession hitting hard these days, more people are considering using their homes to get out debt. Learning about home equity lines of credit is imperative if you choose to draw on the equity in your home. No matter if you’re going for a home equity loan or equity line of credit, each loan is the same as a second loan and is secured by your house. There are some home equity line of credit facts to make your selection a bit simpler.

The majority of home equity lines of credit have small or no closing costs. You simply have to pay interest only mortgage loan payments, that results in lesser monthly mortgage payments than if you have a fixed interest rate loan. Variable mortgage interest rates typically have a lot lower initial rates than with fixed interest rate loans. You may make use of the loan to withdraw only as you require the funds. You just pay interest on the capital that is used, not on the full loan total. You may utilize the remaining balance of the equity line as a rainy day source.

Variable mortgage interest rates aren’t firm and may go up more than a fixed interest rate loan. Monthly mortgage payments aren’t steady and can vary a lot. Nearly all home equity lines of credit entail annual fees paid to the lender. Because equity rates are going up fast, it is simple to use up all of your home equity. It is wise to make use of the equity in your house to get rid of debt, or pay off credit cards. However, utilize the funds sensibly and just take as modest equity as you feel you need to.

Optimistically, these home equity line loan tips should make selecting an equity loan simpler for you.

By: Robin Boddy

Compare Home Equity Loans

admin — Sat, 29 Aug 2009 09:33:23 +0000

When looking for a home loan using equity as security or for a mortgage, you will really need to compare the options that are available to you so that you don’t end up on the losing end. First, get to know about the two different types:

• Fixed rate home equity loan
• Home equity lines of credit (HELOC)

The first loan is one that is fixed. What you need to understand is that when you compare home equity loan offers like these, you will see that the term of the home equity loan is fixed and not the rate. This can be either 10 years or 20 years.

The next thing to figure out is when you can get either of the two loans. There are a few cases and these include:

• You taking out fixed rate equity loan or a HELOC to help you consolidate a debt. This is usually a higher rate debt like credit cards that have high interest rates.
• You taking out fixed rate loan or a HELOC and use that loan as a down payment on a second home or another property that you would like to invest in.
• You getting a fixed rate loan using equity from your home or a HELOC that can be used as another mortgage which is added to the previous mortgage on a purchase that you made on a home or on refinancing.

These are also the reasons why you should make sure that a home loan using your equity as security is the right thing to do.

By: Elija James

Equity Injection Vehicles – 401(k) And Other Retirement Plan Rollovers Under the SBA’s SOP 50-10(5)

admin — Sat, 04 Jul 2009 01:18:43 +0000

It is no secret that documenting equity injection for SBA loans can be a painstaking task. In the past, borrowers often utilized home equity lines of credit as their source of injection. However, plummeting home values and SBA rule restrictions implemented in the SOP 50-10(5) have virtually eliminated this source. Accordingly, borrowers are increasingly providing equity injection in the form of qualified rollovers of their existing 401(k), profit sharing plan or other qualified retirement account (collectively referred to herein as QRAs). To document this form of equity injection, lenders must conduct a unique analysis.

Lenders must first be able to identify a QRA rollover. In a rollover scenario, the QRA purchases some percentage of the borrowing entity’s stock. If the QRA owns at least 20% of the borrowing entity, pursuant to SBA regulations, it must provide a guaranty. By definition, QRAs cannot provide guarantees. Since lenders cannot obtain the guaranty of a QRA, the previous SOP required lenders to apply to the SBA’s Associate Administrator for Financial Assistance (AA/FA) for a guaranty waiver. Because an externally imposed legal restriction (ERISA) prevents QRAs from providing guaranties, the AA/FA was able to waive the SBA’s guaranty requirement. When the AA/FA did grant a guaranty waiver, all principals and beneficiaries were required to pledge their personal and unlimited guaranties. Under the SOP 50-10(5), lenders are no longer required to obtain a waiver from the SBA. Nevertheless, lenders still must obtain the same documentation as if they were submitting a waiver request, including securing the unlimited guaranty of all principals and QRA beneficiaries.

There are three scenarios in which lenders are prevented from documenting a guaranty waiver. First, a QRA cannot purchase the stock of an EPC. The AA/FA did not possess the authority to waive guarantees in these instances, and by extension, lenders do not have this authority. Next, a QRA cannot own 100% of the borrowing entity’s stock. ERISA rules state that neither a QRA nor its individual holder is permitted to incur debt, which prevents the beneficiary/principal from providing his or her guaranty. This situation is ineligible because any beneficiary of a QRA must provide his or her personal guaranty when the QRA owns 20% or more of the borrowing entity. Finally, the borrowing entity cannot be an S-corporation. The professionals who establish these QRA rollovers have stated that in order to be eligible, the entities must be C-corporations. Lenders can verify this information with the professional firm that facilitates the rollover.

Provided none of the ineligible scenarios exist, lenders must next confirm that several requirements are met. Most importantly, individual owners must pay for their stock in an amount that is commensurate with their ownership percentage. In other words, the price per share paid by individuals must be equal to the price paid by the QRA for its shares, and the resulting ownership interests must be proportional to the price paid. Lenders should verify these amounts with the professional firm that orchestrates the QRA rollover and confirm that the funds were deposited in the C-corporation’s bank account. Secondly, if an individual’s spouse has any entitlement to the benefits of the QRA, he or she must provide a full unlimited guaranty. Lastly, an individual’s guaranty must be secured if the value of the business assets securing the loan is less than the amount of the loan.

The final piece of documentation lenders must obtain is an opinion letter from ERISA counsel containing the following: (1) a description of the type of retirement account (the Plan) that owns at least 20% of the business; (2) the specific cite under the IRC that describes the type of Plan; (3) the specific cite under IRC that delineates why the Plan cannot take on any liabilities; and (4) a statement of how the Plan got to be or will be “qualified”. If the Plan is already qualified, counsel must provide IRS documentation showing how it achieved qualified status. If the Plan will be qualified in the future, ERISA counsel must provide (1) a statement of when application was made to the IRS for determination of “qualified” classification; (2) a statement that in the counsel’s opinion, the application will comply with the IRC and ERISA regulations; and (3) a statement that upon final determination from IRS, the Plan trustee will provide the lender with a copy of the approval.

The reasoning behind the prior SOP was not simply to assist lenders in documenting the absence of an otherwise required guaranty, but also to insure that the Plan had or would have obtained “qualified” status from the IRS. A proper QRA rollover will not incur early withdrawal penalties. However, if an unqualified retirement account were to purchase the shares of the borrowing entity, it would incur hefty early withdrawal penalties. The IRS would likely assess these penalties against the borrower within the first loan year and potentially cause a loan to default. Because the QRA funds are a portion of the borrower’s equity injection, this early default could jeopardize the SBA guaranty. In conclusion, in order to preserve the SBA guaranty and facilitate the success of their borrowers, lenders must diligently document QRA rollovers.

By: Annie C. Johnson, Esquire