Tips to Determine if a Home Equity Loan is Right for You

By Michele Lerner
Mortgage Credit Problems Columnist

More Americans than ever are facing an unpleasant financial reality of having too much credit card debt and too little income.

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Homeowners have an advantage over renters because they may be able to qualify for home equity loans which they can use to consolidate their credit card debt. If your past credit history makes it hard for you to get a mortgage loan, enter your information on this site to find bad credit mortgage lenders who may be able to help.

Mortgage Loans for Bad Credit

The first consideration if you want to apply for a home equity loan is to check your credit score and your home equity. Even if your credit score has taken a beating, lenders may be willing to work with you, especially if you can show you are getting your finances back on track.

Your home equity may be a bigger obstacle, since many homes have lost value over the past two years. Home equity is determined by subtracting your mortgage balance (plus any other loans against the property) from the home's value. While some lenders will only loan a maximum of 80 percent of the value of the home, others may allow homeowners to borrow 100 percent of the home's value.

How Do Home Equity Loans Work?

Home equity lending comes in two forms--a home equity loan or a home equity line of credit. A home equity loan is distributed as a lump sum and works best for one-time, large expenses like consolidating your credit card debt or paying for a specific project. A line of credit works almost like a credit card or checking account, allowing borrowers to withdraw funds only when they are needed.

You should consider a home equity loan if you fall into one of the following categories:

  • You are ready to become financially disciplined and stop overspending. A home equity loan can be a good way to consolidate your debt into one payment. The interest rates on home equity loans are usually lower than on credit cards, but keep in mind your payment periods may be longer.
  • The interest on your home equity loan is tax deductible. In most cases, interest you pay on this loan is tax deductible, but be sure to check the fine print and make certain you qualify.
  • You have plenty of equity in your home. As long as you leave yourself a cushion for emergencies, using your equity can help you create better cash flow or cover unexpected expenses.

The main danger of home equity loans is the possibility that you could lose your home to foreclosure if you are unable to make your payments. Be sure you can afford the monthly bills before committing to a home equity loan.


http://www.msn.com / http://financial.wellsfargo.com

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