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Equity Loans in Upland

By admin | August 3 2018
Categories: Equity Loans

What is an equity loan?

Equity loan is typically a mortgage loan where an owner of a house borrows money with the value of the house. This money is secured by the collateral which the borrower provides, this is usually a real estate already owned by the borrower and not secured by any mortgage or charge. So typically, if an individual has a house worth $500,000, they may take a loan on the house to up to 80% of the value. This type of loan is known as an equity loan.

Types of Equity loan 

There are generally two types of equity loans which are Home equity loans and Home equity lines of credit, also called HELOCs. These are both sometimes referred to as second mortgages because they are at all times secured by your property.

The difference between these two types of equity is significant in choosing the equity to take. A home equity loan is usually of a fixed rate, the money borrowed is given out in a lump sum at the grant of the loan and the repayment is in equal monthly installment payments over the term of the loan. Conversely, a home equity line of credit has a variable interest rate but offers better flexibility on the borrowing and the repayment. 

During the initial period of the loan which on the average spans for about 10 years, the borrower can collect funds only when they are needed. The borrower also has the discretion over whether to drop a minimum payment on the interest or to pay the balance in a more aggressive fashion.

How does home equity loan work?

Once you are able to secure a home equity loan, the lender will pay a lump sum out one time. You can then proceed to put the money to use. But immediately you receive the loan, you have to start repaying it.

How does home equity line of credit work?

Home equity lines of credit work in a little different manner; it is a bit more complicated than the home equity loan. They are split into two major parts namely - The draw part period and the repayment period. This type of loan specifically comes with varying interest rates, thus interest rate can change from day today. Car Title Loans California in Minutes

The first part starts when the loan is secured. Once the loan has been secured, the draw period begins. During this period, you have access to draw money from the pool when you need it. This period usually lasts for about 10 – 5 years. During this period, your repayment will be restricted to interest payments only.

The second part that comes after the draw period is the repayment period. During this period the monthly repayment will usually include both the principal sum and any other remaining interest. This period can last for close to 15 – 20 years. It is usually longer than the drawback period.

What categories of people are entitled to equity loan?

 There is no restriction on the kind of individuals who can seek for equity loans, the doors are wide-open for individuals and corporations’ to have access to this type of loan and as such, there is no restriction on the categories of people allowed to access this loan. The only requirement is that there must be a valid title deed to the mortgaged property. A good title deed on a property preferably free from any charge or encumbrance is valuable security to access this loan. The title deeds must legally vest in the borrower and be in the borrower’s name. It is the title documents that qualify an individual for this type of loan.

What basic thing do you need to know before you apply?

Before applying for an equity loan, certain requirements need to be met. Because of the amount of money available in equity loan transactions, it is important to meet some basic requirements. First, a good credit score will go a long way in establishing credibility for these kinds of loans; applicants with a very high credit score have the likely hood of successfully accessing equity loans with good interest rates. The credit score requirement does not preclude applicants with average credit from accessing this loan as long as the applicant convincingly meets the other requirements and has a good title document in a property. Applicants with little or no credit score will have a little bit of difficulty in accessing this type of loan because there will be a slight doubt on their capacity to repay the loan.

 In addition to a good credit score, an applicant will also need to have a property with equity on it, usually a house free from mortgage or charge, or a house with a charge that still has equity on it. Properties with a mortgage pending will be assessed to determine how much mortgage can be granted on the property. This will be done by calculating the applicant’s debt to income ratio to see if you can afford to borrow more than your existing commitments.

Why should you take out equity loans?

Equity loans are taken by borrowers and lenders alike. They are beneficial and attractive because of their low-interest rates; these low rates help keep borrowing cost low. Equity loans are also easy to qualify for despite low or average credit score when compared to other loan. This is because the debt is secured by your house and lenders have a way of managing the liability due to them. Furthermore, borrowing equity loans can be executed in large amounts as long as your property can cover the loan, you can use such loans for starting a business, major house improvement or higher education. In addition to all these benefits, there are also potential tax benefits that come with an equity loan. For example, if you use the loan for major improvements to a property, you may be able to deduct part of it from the interest paid on the loan. Equity loan is generally very safe, and organizations are more willing to give out these kinds of loans.

How to choose the right Equity Plan

Knowing the available type of equity can allow you to select the right plan suitable for your needs. In choosing the right plan you need to first ask yourself the purpose for which the loan is being taken. After this is settled you can now determine the suitable plan

Home equity loan is best suitable for the consolidation of debt or making one-time expensive purchases. Because they are a onetime loan, the interest rates are not easily varied, so the monthly payments remain the same throughout the life of the loan. Furthermore, because of the huge amount of loan dished out, eligibility requirements are usual stricter. Thus there might be restrictions on access to these types of loan,

Home equity line of credit, on the other hand, operates more like a credit card. Thus it is more suitable for a person with several payments over a period such as home improvement or otherwise. This type of equity allows you to continuously borrow a certain amount throughout the life of the loan. There is usually a time limit set by the lender. During the time set by the lender you can withdraw a certain amount. Thus, this line of credit is more flexible than home equity loan, and as you pay off the principal sum, you can use the credit again. It is important to note that because of the flexibility, the amount of interest due to the loan fluctuates over the life of the loan which by implication means that you can end up paying huge interest rates if it rises over time.

How do we deal with Credit Score?

It is an incontrovertible fact that credit score is significant in today’s financial world. It is important because it determines how much loan you can receive from a financial institution and also attests to your character of paying back loans or otherwise, it also gives lenders an inference into your financial habits and whether or not you would be a good customer to borrow money

Credit score is important to us, thus applicants with high credit scores and above have a very solid chance of getting equity loan as their credit score show them to be more reliable. Nevertheless, individuals with average and low credit score still have the opportunity to get equity loans, provided they have a good equity left on their house and support their application with the required supporting documents and a guarantor if available. Any other document establishing their credibility or financial responsibility will also be an acceptable document in support of the loan. It should not be surprising that individuals with low credit scores also have access as the loan is not given against your credit alone but against the title of your house which is the major parameter considered in issuing equity loans. If you have been disappointed at various times for inability to obtain a loan due to credit scores, this might be the best option for you out there as low credit score might will not hinder you from obtaining this loan. 

How is the value of my property assessed?

Because equity loan is a loan on the value of the property of a person, it will be difficult if not impossible to obtain without a property. Thus, you will need to have a property in existence with valid title documents to the property. The lending authority will then appraised the property, this is because a lender cannot tell how much equity is left on a property without actually appraising it. There are various methods lenders use in appraising your property. They could use the existing appraisal on your property – that is if your property is the subject of an existing mortgage. This will be used if the existing mortgage on the property is still less than 6 months old. 

 

If there is no current appraisal, a lender may use one of its approved vendors to conduct a new review to assess the value of the property. This new review is usually costlier than the other forms because a detailed appraisal is done on the property.

The lender can also use the desktop appraisal method; this is a valuation method used by lenders in an automated fashion. The lender will insert the address of the property into the desktop; the desktop will now assess the value of the property based on the comparable deals in the area. It will give a market value, a low value and a high value together with a confidence score on the result. If the confidence score is high, the lender will accept the market value, if low accept the low value. This valuation method won’t be useful when the borrower is trying to have access to as much value as possible. There is also the li ite scope appraisal; this method of appraisal is less expensive than the full appraisal.  A number of lenders use this in many situations and sometimes cover the cost of the appraisal for the borrower. The appraisal is done by inspecting the property from the outside and gathering information on the comparable sale of the property to determine the value. This value is usually lower than a full appraisal but not enough to make a significant dent in the equity.

Consideration before taking the loan

With any form of secured loan comes the reality that you might lose the security should you default in payment. Thus with either a home equity loan or a line of credit loan comes the reality that you might lose your house if you do not make the repayment on your loan. The lender can end up owning your house. In addition, if the sale of the house does not cover the balance on the amount owed you would still be in debt and still be required to pay off the balance on the loan so if you want to get the best deal you should reach out to us because we will always put you first.

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