Home Equity Loan
A home equity loan is a type of cash loan allowing homeowners to pull funds from their home’s equity to do things like finance another house, send their kid to college, pay off credit cards, pay off bills, or make home improvements. Any home loan company you can trust will warn you that you are putting your property in harm’s path if you can’t make the payments, so before you consider this call Diditan Financial and let us go through your options together to determine if home equity loans for fast cash is your best option. All too often homeowners spend more than they make and only wind up in deeper debt. Here are some important questions you need to be asking before you take out a home equity loan to fund your cause.
How do I make Home Improvements that Add Value?
Simply turn on your TV and somewhere there is a show where someone updates a few rooms and adds a significant chunk of value to their home. In reality, this doesn’t happen very often. First things first, don’t believe everything you see on all those DIY / property flip shows. Just look who their corporate sponsors are: multiple home improvement stores, online furniture wholesalers, and real estate companies. Then notice how often sponsor names are dropped on each episode, how they show the delivery truck barreling up to the home with the company’s logo front and center, how the electrician is wearing a shirt with his name and number printed on the back, and how the host talks about the products while giving a benefit. The sponsors pay for most of the upgrades and donate the furniture and waive various fees. Also, In most cases the homeowners on TV sign away their rights to really have any say in what is done to their home (the show’s director scripts it to look spontaneous and make it appear the homeowner is calling the shots). Then a house is always picked in a neighborhood where comps warrant charging more money regardless. So, unless you are a real estate expert and a licensed contractor, don’t bank on adding value to your home. However, if you really want to try, follow these tips and then cross your fingers, or hire a general contractor with a real estate background who knows what will add real value:
- Check the comps on your street for recent home sales of houses that have your same square footage and that are similar.
- Discover what condition the home was in at the time it sold, and if any repairs were written into the contract.
- Calculate the cost of upgrading your kitchen to match what the home across the street did, and see if the investment comes close to matching the average sale price of local homes like yours that had upgrades done.
- Don’t buy retail bling–go to wholesalers and get something practical and durable at a discount.
- If you change the flooring or remodel a room, make sure you do it in a style that is universally pleasing and that will be popular for years to come.
- Kitchens sell homes. So do master suites. Focus on these rooms first.
If you really do plan to use a home equity loan to upgrade your home and prepare it for sale, find a good realtor who can advise you. The last thing you want to do is dig yourself deeper into debt and not get the money back that you put into those marble countertops.
How High can Home Equity Loan Payments Go?
There are many variables that determine how high your home equity loan payments can go. First, are you taking out a home equity line of credit (HELOC) or home equity loan, or a cash-out refinance? If you take out a line of credit you can expect a variable rate that begins low and finishes high. If you opt for a home equity loan you will likely get a fixed rate with a payback period somewhere between 5-15 years. If you refinance with a cash-out option you could deal with a fixed, variable, or a hybrid version of the two. These normally carry terms spanning anywhere from 15 to 30 years. Diditan Financial can help you figure out the potential maximums you face. Give us a call, and our dedicated team will make sure you are getting the best financing option available.
What are some HELOC Terms I Should Know?
If you aren’t fluent in home equity loan and real estate speak, you might often find yourself feeling a little lost in translation. Here are some primary terms thrown around when people talk about HELOCs that you should learn:
Draw Period – This is the fixed period of the loan when you are allowed to draw money from your credit line. Depending on the terms you agree to, this period can vary in length of time, so make sure if the period is short it will meet your needs. The details of your draw period can also differ in that a lender might require you to draw a minimum with a credit line, while another lender could stipulate interest-only payments until the draw period concludes, and then demand that any outstanding balance be repaid.
Introductory Rates – Introductory rates are like the forbidden fruit of Eden; they tease you by looking ideal, but take a bite and you could fall hard. in other words, these rates start out very low to mesmerize and entice buyers, but then they increase like a launched rocket after the introductory period is over. Make sure you know how high these rates can go, and that you can afford to make your payments in the worse case scenario,
Repayment Period – After the draw period comes to an end, the repayment period kicks into gear. This is the time when you start making payments on your loan.
Margin – This is the percentage above the prime rate that exists as the profit made by the bank. You might see it appear on paper as “prime + 2” or “prime + 5”, etc. A higher margin always means your rate will be higher.
By understanding these terms, and many others, you can help protect yourself from being fooled or taken advantage of by a predatory lender. It is also advantageous for borrowers to call our Diditan Financial experts. Our number one priority is to protect customers, and make sure they settle into a loan that is ideal for their situation. Trust your gut instinct; if you feel something is off regarding the terms of your loan, let us have a look and we will go over it with you communicating in clear, simple English with no distracting bells and whistles.