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By: Edward McCarthy
President: Sell By Owner Listings, Inc.
Home Equity Loan Line of Credit
Having equity in your home is beneficial in more
ways than just ownership of your home. Of course equity signifies that
you are well on your way to owning your home free and clear. You should
take a great sense of pride in the progress you have made toward owning
your home. Many lenders allow you to take advantage of equity you have
in your home in the form of a home equity loan line of credit.
Many homeowners are using what is known as a home
equity loan line of credit to borrow from the equity their homes for
various reasons: taking a summer vacation, financing home improvement
projects, paying off other consumer debt, and a host of other reasons.
You can use a home equity loan line of credit in a manner similar to
what you would use a credit card for. The major difference in that you
receive a higher spending limit. The cost of the higher spending limit
is your home.
A home equity loan line of credit, commonly
referred to as HELOC, is fairly easy to obtain given you are credit
worthy and have equity in your home. In many cases, you are able to
receive low interest rates and other perks for obtaining a home equity
loan line of credit. You are typically able to borrow up to 85% of the
appraised value of your home less what you still owe on your home. For
example, if your home is appraised at $100,000 and you owe $30,000 on
your home, you can qualify for a home equity loan line of credit up to
$55,000.
Obtaining a home equity loan line of credit is not
much different from obtaining a mortgage. In fact, when you take out
the home equity loan line of credit, you are subject to many of the
same closing costs as your initial mortgage. For example, when you
close on your home equity loan line of credit you might have to pay an
application fee, appraisal fee, attorney's fees, title search, and
points. As with a mortgage, negotiating these fees is key because
ultimately the cost of your home equity loan line of credit is
increased because of the fees. Ask your lender to detail the costs you
are being asked to pay so you can better determine what to negotiate.
Then, ask that one or more of the fees be eliminated or reduced.
You might be subject other continuing fees with
your home equity loan line of credit. Since these fees vary by lender,
you should inquire about them before obtaining the line of credit.
Typical fees associated with a home equity loan line of credit include
membership fees and transaction fees. These fees, as with the closing
costs, increase the cost of your home equity loan line of credit.
As with mortgages and other loans, you should shop
around for the home equity loan line of credit that has the best terms
for you. This includes the interest rate you are charged, associated
fees/costs, and repayment terms. Use each of these factors to make a
decision on a lender.
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