The real estate sector has made a major improvement over the years; many people have ventured into the business of buying and selling real estate property. This has lead to the increase in prices of homes consequently making home equity more attractive to buyers. Equity has become the main cash source for millions of people and very much accessible to them. if you want to make decision based on home equity, you should read the following facts first.
It is quite easy to qualify for equity
When you are applying for a house mortgage, lenders focus more on your credit score and financial capability. When it comes to equity, lenders tend to loosen up their strict requirements. Almost all the lenders like mortgage brokers and banks have lowered their credit standard to make it easier for individuals to get equity. You will still have to show your income and credit score to prove that you can make the loan payment to the lender. If you have a credit score that is above 700 and debts or commitments that are less that 40% of your income, you are highly likely going to get the equity.
Tax rules keep changing
With the newest tax laws, the lender can only deduct tax from your home equity loan if you are using the cash for some renovations on the property that is connected to the loan. The total equity debt that qualifies for the tax deduction is usually not more than ¾ of the mortgage loan.
Shop around to get the right equity
Getting a quote from different lenders will help you make the right decisions when you are applying for equity. Different lenders definitely have their own standards and you want to get a lender with the lowest and most convenient rate. You can get a quote from your lender and three or more other lenders from banks and credit unions. You can use them as a negotiating factor to ensure you are getting a beneficial deal. Compare the prices, qualification standards, interest rates, terms of service and accessibility to make the right choice.
There are certain risks involved in taking the home equity
There are very heavy risks you could incur if you do not clear the payments on time. Failing to make the payments could lead to a fore closure of your home. Interest rates on the loan may be low, but they could be on the rise. Some lenders offer a variable rate interest on their loans which means they are increasing with time and depending on the financial index.
It could take you up to 20 years to clear the interest rates without even touching the principle amount. You can minimise that impact by clearing some of the principle rate first. Otherwise, if you do not make the payments the lender has the right to poses the home since you put it down as collateral when taking the home equity. Recently, home prices have been stuck and you are not guaranteed that they may continue rising. If house prices lower, you could be paying more than your home is worth.