Mortgages
As a homeowner, you probably have a first mortgage loan on your home. Usually, such mortgages range from 15 to 30 years, and are classified as either ARM, adjustable rate mortgages, where monthly payments are based on fluctuating interest rates, or fixed mortgages, where the interest rate for payments is locked in.
As you continue to make your monthly mortgage payments, the value of your home normally increases. Thus, your interest in your home, or equity, grows. Often, homeowners decide to borrow against the equity in their home to get cash, make home improvements, send their children to college or consolidate their high interest credit card debts. These types of loans are called home equity loans or second mortgages.
Pros and Cons of Home Equity Loans
A benefit to getting a secured equity loan
is that this type of loan is normally easier to get than an unsecured personal loan, since you are using the equity in your home as collateral. This insures that the loan company, if you default on the loan, will be able to sell your house and recoup their loan money. A home equity loan lets you take the money that is already yours and possibly turn it into more money, enabling you to invest those dollars in more lucrative funds or make home improvements that may significantly increase its future value.
However, there are strong caveats to consider before taking out a home equity loan. You should be in a strong enough financial situation to make the monthly payments. You do NOT want to take on a home equity loan if there is any chance that you could default and possibly lose your home!
If You Have Less Than Good Credit Scores
Before choosing a lender that will give you a loan although you have bad credit scores, you must get all pertinent information regarding the company’s business profile. You will probably want to seek out a lender that offers sub-prime loans for borrowers with less than ideal credit scores. You need to make sure that you are dealing with a reputable loan company. If the company is public, you should have no trouble checking out its financial credentials. Be aware of any recent mergers or company restructurings that could indicate potential business problems. Be very wary of loan institutions that are NOT publicly traded.
While not disqualifying you from getting a loan, bad credit ratings make the process decidedly more difficult. You will need to ask about the terms and conditions, including interest rates and the total term of the loan. Closing costs tend to be a major concern for homeowners. Your lender should provide you with a good faith estimate that will explain the fees that you will eventually have to pay. You will need to check on the ability of the loan company’s staff to handle all of your transactions, questions and problems. You also need to inquire about any early payment penalty clause. Will you be allowed to pay off your home equity loan early should you find yourself in a position to do so?
You also need to ascertain the length of the total loan approval process. As a rule, home equity loans, even for people with poor credit, should not take much more than a month to be approved. You need to ask about the length of time needed to take the process from the initial application to receipt of the money, especially if you need the funds for an immediate purpose.
Some lenders may require that you carry private mortgage insurance or pay your mortgage through an ACH (Automated Clearing House) deposit. An ACH network is a highly reliable and efficient national batch-oriented, electronic funds transfer system governed by the NACHA (National Automated Clearing House Association) operating rules, which provide for the interbank clearing of electronic payments for participating depository financial institutions. You should be sure to get each lender’s terms in writing for validation and comparison purposes.
Remember, even though you have bad credit, you still may qualify for a home equity loan.
To learn more about getting your home equity loan approval even with less than excellent scores, please fill out our contact form today. You can even earn an income while securing your mortgage. Click on the above link to find out how.
