May 11

Home equity loan information can sometimes be confusing and misleading. I have written this article to properly explain home equity loans. Basically equity is the difference between your home’s appraised — or fair market value and the outstanding mortgage balance you owe on your home. Borrowing against the equity built up in a home has become extremely popular.

If you’re wondering why this has become popular it’s due to the tax deductions and the low interest rates that are current in today’s housing loan market. It’s also because of the growth of equity in most people’s homes.

For instance if you buy a house for $100,000 with a down payment of $20,000 and have made payments of $10,000 towards the principal then you would have $30,000 in equity. But wait suppose your house has increased in worth to $120,000 in that case then you would have $50,000 in equity that you could use for a home equity loan.

This equity is very valuable because you can use it without selling your home. Banks consider this equity to be secure since it is based on your house so they are more inclined to give you lower rates when loaning money against the equity.

However, don’t be mislead. The cost for these loans is higher then your actual mortgage rate but since many people use their home equity loan to pay off credit cards or make house improvements they end up paying less then if they had gotten a traditional loan. Best of all the interest on this type of loan is also tax deductible. When you add it all up you can actually save money in finance charges.

Anyone using this type of loan must be careful though because if a person defaults or fails to make payments on this loan then the bank can forclose on your house which could prove to be a financial nightmare for the careless borrower. For this reason I recommend using caution when using a home equity loan.

May 6

A no income verification home equity loan is a second mortgage loan that does not require you to provide income documentation to qualify for the loan. This type of loan is great for homeowners who need a home equity loan but have hard to document income.

The majority of borrowers with hard to document income are either self-employed or commission based employees. Consumers who fall under these categories may have high income but have a lot of business related deductions that they write off on their taxes. This is good on the one hand as it reduces the taxable income and thus the amount of taxes owed, however, when it comes to getting a home loan it can hurt as most lenders use the average of your last 2 years taxable net income (the amount left after all of your deductions) to determine your income figure for qualifying purposes. This may cause you to have a debt to income ratio problem if you have a high debt load and thus keep you from qualifying for the loan. With a no income verification home equity loan, however, your gross income can be used for qualifying purposes as opposed to the net income.

In order to qualify for a no income verification home equity loan you will, in most cases, need good credit and a high credit score. Expect to pay a higher rate for this type of loan as opposed to a traditional loan in which you have to document your income. Also, even though a no income verification loan does not require you to document your income, some lenders may require that you have a certain dollar value of assets on hand which must be verified. Not all lenders have this requirement though - some lenders offer a program called NINA which stands for “no income no assets” meaning you do not have to document either. Loan guidelines and rates vary from lender to lender so it is a good idea to shop around to increase your chances of getting the best deal available to you.