Equity Loan Information

Home equity loan?

My husband and I would like to get a loan to fix up our house we plan to sell in 9 months. The house is in nice condition as we replaced everything and remodeled all the rooms except the kitchen that has very outdated cabinets/counter tops. We are going to replace all cabinets, counters, fix our hard wood floors in the living room and paint most rooms to freshen them up. We will need less than $10,000 to borrow. What is a equity loan and would it be better to get a personal loan or equity is ok? We've owned our home for 6 years and refinanced over 4 years ago for a lower int. rate. We are going to fix up the rest of the house and sell. I live in PA. We paid about $104k for the house. We fixed it up and owe about $79k on it yet. the market for houses in our area are really high right now. A house across from us 60's inside, bedroom went for $145k. Ours is 3 bed, 1.5 bath, one bay attached garage, central air, 2 fire places, hard wood floors in living room, new carpet in all three bedrooms, new bathroom with spa tub, laundry room, unfisnished basement on 1/2 acre located in a spaced out development. We're guessing the least we would get is $140-150k.

Public Comments

1. If you are a first time borrower of a home equity loan it is imperative that you have a checklist of essential questions that you need to ask each and every lender. The answers to these questions will provide a valuable reference to base your comparisons on. What’s the interest rate? Knowing this is crucial. The interest rate will determine<!--the monthly payment you will need to make. You also need to know if the interest rate is of a fixed or adjustable nature. Fixed rate implies that the monthly payments will remain constant, while an adjustable rate implies that rates will fluctuate depending on market conditions. http://badcredits.awardspace.com/homeloans.htm In adjustable rate, when will rates change? If your interest rate on the home equity loan is of the adjustable variety, you need to know three things: when the rate is going to change (that is under what conditions), how frequently will the rate change and what’s the average-->percentage by which the adjustable rate will change. What is the Annual Percentage Rate or APR? The APR on the home equity loan will determine the yearly payment you will need to make towards this.The higher the payment in terms of points, the lower is the interest rate.
2. A home equity loan is a second mortgage on your house. You borrow money while pledging the equity you have in your house as collateral. Because the house is serving as collateral, you can usually get a lower rate on an home equity loan than you can get on a personal loan (and certainly lower than borrowing on a credit card). However, if you fail to make payments on a home equity loan, the lender can foreclose on your house, which would be terrible outcome for borrowing just $10,000. The question of what is "better" depends a lot on your personal financial situation. If you have a lot of equity in your house and enough steady income to make payments, then a home equity loan will probably give you the lowest interest rate. Make sure that you take out the loan from a reputable lender (like a bank or a large mortgage company, not some fly-by-night mortgage broker). And ALWAYS read the terms of the loan very closely to make sure that there are no weird provisions that could hurt you. AVOID PREPAYMENT PENALTIES, where you have to pay a fee to pay off the loan before some stated period of time. This is important because you are planning to sell off your house (and thus pay off the home equity loan with the sale proceeds) fairly soon. Also try to AVOID PAYING UP FRONT POINTS AND FEES, an expense that makes no sense given that you expect the home equity loan will only be around for 12 months or so. The interest rate might actually be less important than the fees (i.e. it's OK to pay a slightly higher interest rate to avoid fees). The difference between 6% and 8% on a $10,000 loan is just $16.67/month. If you paid $300 in fees for a 2% lower interest rate, it would take 18 months to recapture the fee. Since you plan to sell within a year, adjustible vs. fixed rate may not be too important either, especially if the adjustible rate is fixed for the first year. However, if you choose an adjustible rate loan, consider the possibility that you won't be able to sell right away and the rate might adjust sharply upward in year 2. If you go adjustible, read the documents carefully. If you don't have a lot of equity in your house, you might be forced to take out a personal loan. Most home equity lenders will not lend you money if your total mortgage debt (first mortgage plus home equity loan) exceeds 95% of the appraised value of the home. And you probably shouldn't borrow that much anyway, because after the other costs of selling a home (real estate agent, settlement costs, etc.) you won't get anything back from the sale and might even end up owing money. If you take out a personal loan, shop around and read the terms very carefully. Bank loans tend to be less cutthroat than small lenders, so start with your local bank first. You don't mention where you live, but in most parts of the country real estate prices are falling right now. That means that in nine months your house might sell for less than you think it will sell for now. You might want to consider that as you put money into fixing it up. Chances are good that you won't get the entire $10,000 that you invested into fixing it up back in the final sale price. (This is usually true even in rising home price markets. The reason people fix up their homes before selling them is that they usually sell faster, not for more money.) Good luck!
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