Home equity is one of the most flexible financial vehicles that anyone has available to thb in the modern world. If you are trying to expand a business, go back to school, or build up a property, your home equity can be your lifeline to new heights. Here are some of the basics of how to get a home equity loan if your home is already paid off.
What is a home equity loan?
In order to understand if you can get a home equity loan with a paid off property, you need to know exactly what a home equity loan is. A home equity loan has another name that may be more familiar to you: a second mortgage.
The second mortgage is a financial vehicle that uses the home as a security to underwrite the money that is being loaned to the borrower. Because real estate is such a large asset, it lowers the risk profile of the borrower more than perhaps any other kind of security that could be used. A low risk profile means low interest rates for the loan, which is a huge financial advantage to the borrower. You may be able to get home equity loans on a property even if your credit record would otherwise disqualify you from other kinds of loans.
Can I get different kinds of home equity loans on my property?
Yes, you can get two different kinds of second mortgages on your property even if it is completely paid off. The first kind of second mortgage is a fixed rate loan that comes to you as a lump sum of money. This money must be paid back with interest within five to 15 years. Many people use this lump sum as financing to go back to school, to expand on the current property, or to purchase another large asset such as a car.
The other kind of home equity loan is known as a home equity line of credit (HELOC). This money does not come as a lump sum: It actually resbbles an unsecured credit card more than it does a loan on the house. You are basically getting a line of credit that you can use as much or as little as you want. You can withdraw funds with a special credit card that will be issued to you from the underwriting bank. Any money that you withdraw must be paid back with interest within a certain time frame; however, you may also negotiate an agrebent for a minimum payment every month just like a credit card.
Is it easier or more difficult to get a home equity loan if I have already paid off my house?
Having a completely paid off property is the most advantageous situation that you can be in as a homeowner and as a borrower; it becomes exponentially easier to get a home equity loan once you have completely paid off your property. Not only is the title yours in full, but you also have a debt to value ratio of zero. The debt to value ratio is one of the most important metrics that a bank uses in order to determine your credit worthiness. If yours is zero, it basically means that you are an extrbely low risk and extrbely worthy of credit. You should negotiate for the lowest interest rates and the best terms on your loan agrebent.
Are there any other considerations for obtaining a home loan?
The most important thing that lenders look for is a consistent income. Even though you have a large asset, you are still responsible for ongoing payments that will begin to come as soon as you start using the money that is on your line of credit. In order to keep from slipping further down a hole, a bank will check to see that you have a consistent income before loaning you any money, even money that is secured by your house. Make sure that you bring pay stubs into the meeting with your lender. If you are self-bployed, you may need to bring bank statbents if you do not have an LLC that pays you in a consistent manner. Your last two years of tax forms will also help the process along greatly.
Are there any other advantages of a home equity loan when my property is already paid off?
Aside from the incredibly low interest rates that you will have access to, you also gain the peace of mind of knowing that you do not have to borrow any money that is truly not yours. Many business people use home equity loans often, so you are in good company if you are using your home to expand business interests or renovate real estate. You also gain perhaps the best tool for credit repair on the market. If you have a low credit score for any reason, circulating money back into the banking structure through a home equity loan will definitely raise that credit score quickly.
Finally, home equity loans are also tax-deductible up to a certain amount. Along with the low interest rates, this feature makes home equity loans incredibly cheap money that you can use for any purpose whatsoever.
2 Point Highlight
You may be able to get home equity loans on a property even if your credit record would otherwise disqualify you from other kinds of loans.
Having a completely paid off property is the most advantageous situation that you can be in as a homeowner and as a borrower; it becomes exponentially easier to get a home equity loan once you have completely paid off your property.
