Do You Qualify for a Home Equity Loan?
January 20, 2012 | 
Author When you apply for a home equity loan, lenders consider your creditworthiness when deciding whether or not to extend a loan. Your creditworthiness is assessed based on three things: credit history, income, and loan-to-value ratio.
Credit History
As with any loan, your credit history will have a major effect on home equity loan availability and loan interest rates. Fortunately, qualifying for financing on a home you already own is much easier than qualifying for a new home loan. If you have good credit, you should have no trouble qualifying for a home equity loan. You should also be able to obtain a relatively good rate. If you have bad credit, you should still be able to obtain a home equity loan, but your rate will probably be a bit higher. Before applying for a home equity loan, take time to pull your credit report. If possible, improve your credit rating by removing mistakes and old debt.
Income
Even though the equity that has built up in your home belongs to you, lenders will still want to make sure that you can pay back any amount that you borrow. To determine your ability to repay, lenders will assess your monthly income and your total debt-to-income ratio. (Debt-to-income ratio is a term used to describe how much of your monthly income goes towards paying your mortgage, credit card debt, loan installments, and other financial obligations, including the home equity loan for which you are applying.) Most lenders will want to make sure that your total debt does not exceed 38 percent of your monthly income.
Loan-to-Value
The loan-to-value ratio is the amount you owe on your house versus the amount your house is worth. For example, if your house is worth $100,000 and you still owe $70,000, your loan-to-value ratio is 70 percent. When you get a home equity loan, the value of your home is re-assessed. The lender will add your current mortgage balance to the requested home equity loan amount, and divide the sum by your home‘s current value. The final amount is the new loan-to-value ratio. Many lenders want to keep this amount below 80 percent. However, some lenders are willing to loan you 100 percent of your home‘s value or more. Here is a list of recommended Home Equity Lenders online. It’s important to use a reputable lender online to make sure your personal information is secure.
What is the Average Car Loan Rate of Interest For People With Bad Credit?
Many people that are looking to buy a car and have bad credit, really don’t know what to expect in regards to the interest rate that they will be asked to pay (or TOLD to pay by some dealers). Average car loan rates for people with good credit can be anywhere from 4% to 7% depending on the market and the source that you use for financing.
When you have bad credit, average car loan rates can vary dramatically. This is where finding a good source for your auto financing is crucial.
For example, if you use a car lot that has in house financing, you can expect to pay upwards of 20% interest and up to 28%, depending on your state of residence. Average interest rates charged by these establishments used to be unregulated and eventually state laws had to come in to keep things from getting out of hand.
In all truthfulness, there is no such thing as an average rate for a car loan when it comes to people that have bad credit. There are too many variables and too many stipulations and conditions that determine the rate. Getting the lowest rate for a car loan when you have a low credit score is determined more by the lending source that you select, over all other factors.
You can expect to pay a higher rate than someone that has excellent credit… that is to be expected. You should not however, accept any offer at a rate of over 12% unless you have thoroughly researched and explored other possibilities first. There’s nothing worse than having bad credit and having high payments… that makes getting ahead and improving your credit that much more difficult.
To obtain the lowest car loan rate on a car when you have bad credit, you should look into using reputable, legitimate sources for online car loans. Lending services vary one from another. Some are reputable and some are not. Be sure of what you’re doing before you jump in and sign a contract.
I Need a Personal Loan Quick But I Have Bad Credit – Bad Credit Personal Loans
Bad credit personal loans help people who do not have good credit scores to get personal loans for taking care of their financial needs. So, if you have poor credit, how can you ensure that your application for a personal loan is approved?
There are many lending institutions which are available today who are willing to offer loans to people with poor credit ratings. These specific loans are given on different terms and conditions. In such cases, the lenders usually expect some form of collateral from the borrowers, which may be in the form of a house, jewelry or a car. Generally, the terms of repayment on such secured loans are more flexible and convenient for the borrower, which helps them to repay their debts without too much financial strain.
However, those individuals with bad credit history seeking personal loans without any security may face some difficulties in securing and servicing the loans, especially since they have to pay a higher rate of interest on the loans. Besides, these individuals may also be able to get only low amounts of money for the loan, which has to be repaid within a shorter time frame. Many people prefer secured loans as the best option, which helps them in managing their finances well so that they can pay all their outstanding debts easily.
Improve your credit ratings using bad credit loan
These loans provide you with an opportunity to correct your past mistakes where you may have defaulted on making payments; made late payments or got involved in other things which might have affected your credit history. Remember, your past credit history can have a huge impact on your ability to get a loan quickly from the lenders, as most of them are not willing to take such big risks on borrowers. However, people with a poor credit score can still have access to loans for personal use, if they are willing to pay a high rate of interest.
These loans dedicated for people with poor credit ratings can allow you to resolve all your issues related to bad credit where you can use these loans to pay all your outstanding debts on time. If you want to get this type of a loan for personal use, then you need to shop around and look for lenders who are willing to offer you the best rates. It is important to read the terms and conditions carefully and see if it suits your budget and requirements. The best way is to find an affordable scheme that can help you to repay your monthly installments on time.
You need to be careful about lending companies whose sole motive is to make profit and dupe customers by charging them exorbitant interest rates and fees for lending them loans. Always make sure to verify the credentials of the company while dealing with them to see that you get a fair deal on your loan.
It helps to get a bad credit loan from the highly recommended lenders.
What is the Average US Credit Score?
The credit score, also well known as a FICO score, is a statistical or numerical interpretation of the information portrayed through your credit file that basically provides a likely window to whether you would pay a loan back on time — the higher your credit score, the higher your credibility in the loan market.
The report is written and generated by the credit bureaus on the basis of the information which they acquire from creditors and the companies from where you obtained credit in the past and other details composing mainly of your past payments, your credit period and the nature of credit that you availed and amounts still due. From this report a credit score is calculated which ranges from a minimum of 300 to a perfect score of 850. The median or average credit score for borrowers in the United States is 723.
This credit score acts as a ready reckoner and a handy mechanism to assess how much risk is involved by providing loans to a potential borrower. The higher the score of a likely debtor, the lesser is the risk posed to the lenders and a higher score also determines the likelihood of obtaining the best available deals and return rates.
The consumers who can manage to maintain their credit scores more than 700 are the ones who are usually charged relatively lower rate of returns, while those having credit scores rising further above 760 are charged the lowest prevalent market rates.
Those consumers having their credit scores below 600 normally have to pay relatively high loan rates. If you find it difficult to manage funds and your credit score dip alarmingly low and the credit score is really bad, you might find it difficult to secure loans from anywhere at all. Most creditors find the credit score of 620 to act as a break-even point.
The scores fluctuate from time to time, because your repayment determines your credit scores. The later your payment is made after a date due; it will affect your credit standings and will lower your credit score. Establishing or re-establishing a good repayment track record of settling the credit bills on scheduled time will help in strengthening your score.
Delayed payments of bills have a very negative impact on your score For instance, someone with an average credit rating of 700 plus can increase their score by as much as 20-25 points by payment of all the bills on the correct time in a given month.
Elevated debts can affect your credit score. Stretching out all of your credit cards to the maximum limits might lower your average score by as much as 70-80 points.
It is advisable that one should not open credit card account that they do not require. Even a closed credit account would still appear on your credit report and may be considered while evaluating your credit score. Every new subscription tends to reduce the average credit account age, which would eventually cut your score down further by a margin of 10-15 points.
Although it is better to have a credit account than none at all because generally, having credit cards and timely repayments in the same will increase your score. Someone who does not possess credit cards, for instance, has a tendency to be at a higher risk than anyone who has responsibly managed their credit cards.
What Are the Home Equity Loan Rules in Texas?
The state of Texas has some pretty interesting refinance rules. This is especially true when one wants to pull cash or equity out of their home.
There are two types of mortgage refinances. The first type is called a rate and term refinance. This is simply when someone wants to lower their rate or change the term of their original home loan. For example, someone with a 30 year mortgage at 7% may want to refinance to a 5.25%, 15 year mortgage.
In this instance they are not pulling cash out they are just changing the rate and/or the term of their original loan. During the “refinance boom” (2001-2004) many loan officer and mortgage brokers did dozens and dozens of rate and term refinances because mortgage rates dropped so low.
Most people refinance when their home loans when the market rate is much lower than their current mortgage rate. A good rule of thumb is when you can save about 1% it may make sense to refinance.
The second type of refinance is called a Texas Cash out Refinance. This is when someone wants to pull cash out of their home in addition to lowering or changing the rate or term.
Texas once outlawed the ability to pull cash out of one’s home but now allow this as long as the loan meets these criteria:
80% Texas Cash Out Rule: This rule states one that the loan can not exceed 80% of the home‘s appraised value.
For example, if one’s home is worth $100,000 and the current mortgage owed is $50,000 than an equity loan can go up to $80,000 (80% of 100k). Thereby netting the borrower $30,000, less closing costs.
3% rule: This rule state that the total fees can not exceed 3% of the loan’s value. For example, if someone does a 100K equity loan the total fees can not exceed $3000. This means broker, title, survey, appraisal, underwriting, doc/prep (everything!) can’t exceed 3%. This law was intended to protect borrowers but it actually penalizes lower loan amounts making it difficult for those with small loans to take advantage of their equity.
This is a great example of regulation doing the opposite than what it was intended. So for those with loan amounts under 100K, it’s very difficult to do a home equity loan as state law also requires one to purchase a new title policy each time one refinance. Title policies usually run 1% of the loan amount.
However, it’s important to note that the 3% law does not apply for those doing an investment cash out home equity. So it’s actually easier to do a home equity loan on an investment property than on an owner occupied property in Texas!
12 Day rule: This is one of the more unique rules. Whenever you do a home equity loan your loan officer or mortgage broker will ask you to sign a 12 day form. This form states that the loan can’t close until 12 days after the date of the application. I guess the state of Texas wants you to have 12 full days to think about your loan!
3 day rule: Then, after we wait 12 days, we are required to wait 3 days until we fund. Not to mention one is required to look and sign the final HUD (settlement statement) 24 hours before closing.
So to make things simple: The loan can’t close for 12 days. Then, once the HUD is prepared by the title company the borrower(s) must review and sign the HUD 24 hours before we close. Then we can’t fund the loan for 3 full business days.
These rules are why it often takes 30 full days to fund a Texas Cash out loan.
Oh, and by the way. The final rule…one must wait 12 full months between home equity loans. So if you do a Texas cash out one year and the price of your home goes up significantly you must wait a year before refinancing.
Because Texas home equity loans have so many rules it is important your mortgage professional truly know the rules so everything goes smoothly with your refinance.
Looking at Adjustable Home Loans – How to Get Out of ARM Mortgage Loans When You Can’t Refinance
Adjustable home loans were a great option for borrowers a few years ago. Even people with bad credit could take advantage of adjustable home loans at that time.
The Trouble With ARM Mortgages
The main trouble with adjustable home loans started when the values of homes started to decrease across north America. Many people who had ARM Mortgage loans suddenly owed more on their mortgages then their houses were worth.
Then banks started to tighten up their lending guidelines and most of the subprime lenders disappeared taking with them the loan programs many people used to get financing. With the loan programs gone and property values plummeting a stage was set for the perfect financial storm.
This left many home owners unable to refinance their ARM mortgage loans, this is were the trouble started. Unable to refinance their loans the interest rates and mortgage payments on adjustable home loans started to increase at an alarming rate. This increase caused many home owners unable to pay their mortgages and many began to fall farther and farther behind.
Once they got to far behind on their house payments the next step was foreclosure. With no other options at their disposal many people wound up losing their homes.
What Can You Do I You Cannot Refinance your Loan
If you are one of these people who have an adjustable home loans and are unable to refinance your best chance at getting yourself back on track is to contact your current mortgage lender and ask them for a loan modification.
A loan modification will switch ARM mortgage loans over to fixed rate loans or give you a longer fixed rate time frame for adjustable home loans.
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Cash-out Refinancing Pros and Cons
Cash-out refinancing allows consumers to refinance their mortgage for more than they currently owe; the remaining balance goes to the consumer. This gives the consumer the opportunity to borrow more money against a mortgage.
Compared to home equity loans that are separate loans on top of a mortgage, cash-out refinancing is a replacement of the first mortgage. Also, the interest rates of cash-out financing are usually lower than the interest rates you pay on home equity loans. However, you have to pay closing costs for cash-out refinancing that can amount to hundreds or even thousands of dollars. There are no closing fees with home equity loans. Also, it seems quite impractical to refinance a higher amount at a higher rate. Thus, if your current mortgage is at a lower interest rate than you can get through refinancing, a home equity loan may be a safer option.
Cash-out refinancing may not be the best option for everyone. Consumers dictate how much they would like to save and what they want to spend the extra money on. Cash-out refinancing entails more costs, since consumers pay private mortgage insurance companies if they borrow more than 80% of the home‘s value. This added cost takes its toll and may make other available options more feasible and less costly.
Further, it is important to consider how to spend the money that you receive from cash-out financing. Since cash-out financing will add to your payment period, it is best to spend it on enduring investments like home additions; starting a business or medical expenses that health insurance does not cover. Spending it on a dream vacation or to a new car may be considered but will entail more payments putting you further in debt.
Refinance and Buy a Second Home
Refinancing is great to be able to come up with a higher level of cash. If you have been thinking of buying a second home, refinancing your home may be the best option to make things work.
The first key to success is to know the different levels of finance. There are loans, and other financial options. When it comes to buying a second home, there needs to be some solutions.
You need the principle to get a mortgage, then you need to get the financing to be able to get the second home. Luckily refinance is a great option for this.
This principle that you need to raise to get a mortgage could be readily available with the aid of refinance. The first key is to actually be able to go through this process is to look at how much equity you have.
The equity determines how much you can refinance. Without getting technical there is another aspect of finance called gearing. What this means is that lenders will check how much you are in debt. This enables them to know what is a safe financing level that you can get.
When you refinance, this possibly can make gearing levels higher, so it is best to find a balance. The key is to get started and balance to find the best solution.
Finding the financing can be done through several methods. One source is to actually go online and find several places that offer refinancing.
With so many lenders going online, there is a wide range of choice. With some research, you can actually find what you are looking for.
What Is Involved In Refinancing Your Home? 5 Steps To Refinancing
A home refinance may just be the smartest thing you can do right now to cut down on your monthly expenses. After all, many people who refinance their homes end up with significantly lower payments – often saving at least a few hundred dollars per month.
And, the home mortgage refinancing benefits do not end there. By refinancing your loan, you can also potentially stand to pay less in interest fees over the course of your loan. When you combine that with the possibility of cashing out some of your home equity in order to pay down high interest credit card debt or to pay other bills, refinancing can be a very smart move.
But, it is a good idea to have a solid understanding of just what is involved in refinancing your home before you get yourself into it.
If you are wondering, “What is involved in refinancing your home?”, here are 5 steps to refinancing:
1. You need to get a sense of where mortgage rates are right now from a historical perspective:
Before starting the refinancing mortgage application process with one or more lenders, it makes sense to do a bit of research first. Find out, for example, how current average interest rates on 30-year fixed rate mortgages look now as compared to 1, 3 and 5 years ago. If rates are at an all-time-low, this could be an ideal time for you to consider refinancing.
2. Check your FICO (credit) report:
Similarly, it is a good idea for you to check your FICO (credit) report. In particular, find out whether your current score is the same, lower or higher than it was when you took out your current home mortgage loan. If your score is higher, this is all the more reason to consider refinancing – since you may now be able to qualify for a better interest rate than you could have previously. A lower interest rate of course translates to lower monthly payments when comparing two loans with the same repayment periods (e.g., 30 years).
3. Be ready to show proof of employment and income:
Whenever you take out a loan the size of a mortgage loan, it is wise to prepare in advance any documentation you may be asked to present, such as proof of employment and income. This information, along with your credit score, will be important factors to be considered by your new lender.
4. Compare at least 3-5 home mortgage refinancing lenders:
Next, you will benefit from not just applying for a loan with one lender. Instead, apply online with or talk to at least 3-5 mortgage refinancing lenders. You may choose to include your current lender in the mix, but be sure to look elsewhere, too. You can never be sure who will offer you the very best loan terms.
5. Follow through with applying to each and every refinancing lender on your list:
Be sure to apply to each and every refinancing lender that you have in your sights. It does not make sense to give up after getting your first offer when spending just an extra hour or two could land you an even lower, money-saving interest rate.
Take these 5 steps to refinancing into account as you explore what is involved in refinancing your mortgage loan.
Cannot Refinance ARM Loan – What to Do When You Cannot Pay Mortgage Payments at a Higher Rate
Many borrowers that have an ARM loan across the country are facing the reality that they cannot pay mortgage payments. Many have tried to refinance but were unable to qualify for numerous credit or property value reasons. Some borrowers that have hard to prove income simply cannot find any loan programs they qualify for, even with good credit and equity i their home.
If you find yourself facing the possibility of not being able to refinance your ARM loan and you know your adjustable rate mortgage payment will soon be going up you are going to have to make a few changes in your lifestyle
What To Do To Prepare For a Higher Adjustable Rate Mortgage Payment When You Can’t Refinance
Cut out extra expenses like cable TV, cellular phone plans, gym memberships and going out to dinner as well as other unnecessary entertainment costs
Stop buying things like morning coffee, lunch at McDonald’s and start bringing your own lunch and making your coffee at home
If you smoke you can save hundreds of dollars a month by kicking the habit, not only will you save money but your health will improve to!!
Conserving energy around your house can free up as much as $30 a month if you just turn off lights and televisions when they are not in use.
While these all may seem like small things they can save you a fair amount of money every month when combined as a money saving plan. ANd when your facing a higher mortgage payment every little bit helps.
Call Your Lender Right Away
After You Have Trimmed your budget you need to call you lender and let them know whats going on as soon as you know there could be trouble.
Tell them you have a strong desire to keep your home and that you are unable to refinance your ARM loan. Also be honest with them and let them know you cannot pay mortgage payments that are higher then what you already have.
In most cases they will work with you and offer you a loan modification so the higher adjustable rate mortgage payment does not drive you into foreclosure.
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