We have to renovate our master bathroom but don’t completely have the funds. Someone told us this is the way to go but did not explain it very well.
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#1 by Ron at June 17th, 2009
It all depends on how much money you need to renovate the bathroom.
You need to look at all potential money needs long term. Keep in mind that equity lines calculate interest daily like a credit card.
#2 by Steve D at June 20th, 2009
A Home Equity Loan or a Home Equity Line of Credit are loans/cash advances made to a person based upon the amount of equity he/she has in the home.
The loan is collateralized by the equity in the house and the lender places a secondary lien on the house. Thus, if you do not pay the home equity loan, you can have the house foreclosed upon by the company.
While different companies have different standards, assuming a max loan-to-value of say 95%, it works sort of like this :
Say your house appraises for $200,000 (you will need a recent appraisal to get the loan). You can borrow up to the point where your primary mortgage and your secondary mortgage balances equal $190,000 (95% of the 200,000). If the balance on your first mortgage was, say, $150,000, you could borrow up to $40,000 for the home equity/HELOC ($150,000 plus $40,000 puts you at the $190,000 max - 95% LTV).
You can use the money for anything you like - renovations, a Hawaiian vacation, a new car, whatever. Since the Equity Loan is secured by your house, you usually get a lower interest rate than say a personal loan. Obviously, the major problem is that you put your house on the line should you fail to keep up with the payments on either the first mortgage or the second mortgage.
#3 by lea lange at June 20th, 2009
in a home equity loan you are borrowing against your equity in your house. the lender will do some kind of evaluation as to what you house is worth
if you owe more than what it is worth you won’t get the loan. given where the real estate market is now it is not a good time to get a home equity loan. there are websites that will tell you what they think your house is worth, eg zillow.com
once you have a home equity loan you can use the money for whatever you want
#4 by †Ask Me Anything† at June 20th, 2009
You would need equity in your home in order to qualify. For example, your loan is 100k, and the appraisal comes back 150k you would have equity. HELOC’s are a great way to finance renovations.