How Christian Home Equity Loans Work
Many people begin to wonder how Christian home equity loans work when money gets tight. Major projects like remodeling or renovating a house, paying for college tuition, purchasing a second residence or consolidating high interest debts have attracted thousands of homeowners to borrow money against the investment placed in their current house. During the past twenty years, these loans have risen in popularity so much that people have even used them for purchasing computer equipment or paying for extravagant vacations. With rising property values and extra tax incentives, more and more people each year seek out how home equity loans work for them.
The key to how home equity loans work begins with equity itself. Buying a house is an investment. Individuals and families purchase property with the hope that it will increase in value and enhance their net worth. Equity is the difference between the value of the property and the amount still owed on that property. The value may not necessarily be the amount paid for the property. More than likely, the value has risen or fallen since the original purchase was made. If it has risen significantly, the equity available may be larger than the original price, even if money is still owed on the property. The longer a homeowner has lived in a certain house, the greater the investment will grow as well.
The basic premise of how home equity loans work includes two types of financing. A home equity loan is basically a second mortgage. It allows a homeowner to borrow large amounts of money using his/her house as collateral. Individuals with poor credit are able to borrow funds fairly easily since the security provided in the house is so stable. Second mortgages are taken out for a specific amount of money. Although interest rates are usually higher than those of first mortgages, the interest of funds up to $100,000 is tax-deductible. Lenders schedule repayments over a fixed period of time, which is considerably shorter than the original mortgage - usually between five and fifteen years, depending on the credit score of the borrower. Prime borrowers can often negotiate for a longer period to repay the funds than subprime borrowers with lower credit scores.
The second type of financing is a home equity line of credit (HELOC). Similar to how home equity loans work, HELOC uses the homeowner's house for collateral, but the similarities end there. The line of credit works similar to a credit card with a pre-determined limit on how much an individual can borrow within a specified amount of time determined by the lender. The credit limit is normally a percentage of the equity that currently exists in the property. Homeowners can draw on that credit using a special card, checks, or electronic transfer. Once the limit is met, the individual cannot borrow more without paying off the original debt. Lines of credit also use a variable interest rate instead of a fixed rate. Some lenders will place a cap on the interest rate during the term of the agreement or will allow borrowers to convert to a fixed rate later in the process. HELOC is an easy way to get funds when the full amount is not known at the beginning of the process or for short-term borrowing needs. With both types of financing, extra closing costs and processing fees may increase the amount of borrowed funds; however, some lenders will waive these extra charges.
Reverse mortgages are another facet of property refinancing. Fewer people qualify for this type of loan. Homeowners must completely own their properties and meet certain age requirements. Lenders will allow customers to borrow up to a percentage of their property value. The older the homeowner, the more he/she can borrow. As long as the borrower lives in the home, the funds do not needs to be repaid, but payment in full is due if the owner sells or dies - in which the inheritors of the property will be responsible. Interest accrues against the value of the property, but like the other plans, is tax deductible.
Home equity loans may seem like a dream to individuals needing money, but homeowners must use caution. Lenders approve financing so freely, because they know how home equity loans work. The biggest risk is that the homeowner loses the property if he/she defaults on the payments. For the lender, the risk is minimal. The institution repossess a house and sells is to replace funds that were lost. The risk is higher for young homeowners who don't have solid job security or older property owners who are near retirement and can't afford to lose their assets. Consumers must become aware of how home equity loans work as well. Drawn in by really low monthly payments, borrowers may ignore a balloon payment, a large installment due at the end of a term. Interest rates may also not be calculated at the beginning and come due later. Some lenders charge large fees or penalties for prepayments. With all financial transactions, be aware of scams. Ask an attorney to review paperwork before signing. "Trust in the LORD with all thine heart and lean not on thine own understanding. In all thy ways, acknowledge him, and he shall direct thy paths" (Proverbs 3:5-6).
As with all financial negotiations, know how home equity loans work. Beware of the pitfalls as well as the advantages. Always read the fine print of any contract. The Consumer Credit Protect Act enacted in 1968 requires lenders to disclose all payment terms, interest rates and fees at the beginning of the agreement. Consumers have three days to cancel a contract without penalty. Research the various lending companies and plan a budget well ahead of time. It is easy to be tempted to borrow more than needed. "Watch and pray, lest ye enter not into temptation" (Mark 14:38). Only request what can definitely be paid back.
Home Equity Christian Loan CompanyHome equity loan companies assist consumers with the purchase of a house by lending funds. When looking for one, it is wise to shop around. Before deciding on a lender, homebuyers should do a little homework. First and most importantly, consumers need to decide if it's a loan they are seeking or a line of credit, as they are very different. Those who are seeking funds from a home equity loan company will receive a lump sum and pay it back over a period of years with interest. If it's a line of equity, the money goes into an account that can be used when needed.
In searching for a lender, there are mortgage directories on line available. There are also companies with websites that make getting quotes and filing applications quick and simple. A good home equity loan company will not only offer web tools, but low rates and fast funding. Some offer no lender or prepayment fees and others offer a company assistant. The assistant is a form applicants fill out, with four or five simple questions to assist the home equity loan companies in finding the best loan for the homebuyer's needs.
When seeking out lending companies, there are some things to do and some things not to do. Homebuyers shouldn't settle with the first home equity loan company they speak with, no matter how good the deal sounds. Consumers may find a better offer elsewhere. They also need to find out if the lender requires insurance, the interest rate, the closing costs and find out if an appraisal is necessary. Most importantly, homebuyers need to pray and consider God's will for owning a home and financing it wisely. "O LORD my God, in thee do I put my trust: save me from all them that persecute me, and deliver me" (Psalm 7:1).
With so many options available, homebuyers can afford to be picky. Home equity loan companies want more business, so they are going to work out a deal if possible. A final word of caution when seeking out lending - many of them offer up to 125% of the value of the property. Just because the consumer may be eligible for a certain amount doesn't mean they need to borrow that much. Don't borrow more than the home is worth and don't borrow more than can be comfortably paid back. A home equity loan company is there to serve consumers needs, and they will. Just do a bit of homework and understand the terms before signing on the dotted line.
Home equity loan rates can be the best option in personal financing for the right person. A personal financial assessment of the situation should be done by a professional. These rates are usually in the same ballpark as an adjustable rate mortgage (ARM). ARMs are about 2 percentage points lower than the average fixed mortgage. Those seeking low home equity loan rates should shop around for the best lender or brokerage that fits their repayment needs. If refinancing is in the future it is important to research all options before possibly making a regrettable mistake.
When searching for a low home equity loan rate, experts recommend that borrowers obtain copies of their credit report from all three nationally recognized credit-reporting agencies. These three agencies are Equifax, Experian, and TransUnion. Obtaining a credit report for the purpose of checking for inaccuracies, set up payment plans with debtors, and raise the score to meet certain standards should be done well before the application of any type of financing. A borrowers credit score directly determines home equity loan rates. Raising the credit score as high as possible before being quoted is top priority in receiving an accurate quote. Many lenders will advertise their rates low to those with much value in their house or excellent credit scores.
Some low home equity loan rates are offered only in conjunction with specific programs. It is important to read the small print before counting on any advertisement associated with personal financing. Lenders have programs that offer interest only repayments, quarterly, and annual repayments, as well as no repayments until the home sells. There are dozens of equity loan programs to choose from. Finding the right home equity loan rate to suit the borrower's current financial needs is the key. There are home financing counselors that can help a borrower make sense out of the information they are receiving. God promises to provide for all needs, even if they aren't the needs we have in mind. Pray diligently that God takes control of financial decisions as well as all other aspects of life.
Christian borrowers that do not qualify for financing at a lower rate have the option of taking the higher rate and refinancing after improving their credit score. Some borrowers use a high home equity loan rate to receive funds, which in turn pays off debt to raise credit scores. This in turn sets the lender up to receive a low home equity loan rate to pay off the original loan and make regular payments with the lower rate for an extended period of time.