What is Home Equity?
Purchasing a home is a huge life event. It’s an investment that, over time, could yield a significant increase in value. As the years progress, the value of your home could increase. If and when the time comes to sell, hopefully you’ll find that you can get more money for your home than what you originally paid for it; yielding you a profit.
But the resale value, or even the appraised value before a sale, of your home is not the only value your home contains. When you purchase a home and make payments on your home mortgage, you start building what is called home equity. Home equity is the difference between the current value of a home and the amount still owed on the mortgage. As the principal of the mortgage amount decreases as a result of monthly mortgage payments, the home equity increases – even if the home doesn’t increase in value. So, you can build home equity from an increase in the potential sale price of a home and from paying down the mortgage debt that you owe on your home.
What is the Value of Home Equity?
Home equity is money in the bank. Homeowners can borrow against their home’s equity to pay for home repairs and renovations, school tuition, costly medical expenses, and even pay off debt. Your home provides you with financial opportunities not many lenders can provide. Home equity is a significant advantage to purchasing a home and a great financial resource to have. You never know what life will throw at you. It’s always good to have a “nest egg” of readily available built up capital to turn to if you’re faced with a financial crisis.
How do I use My Home Equity?
If you want to use your home’s equity for home repairs, college tuition, etc. , you first need to get a home equity loan. A home equity loan is a loan based on your home equity. There are two types of home equity loans:
1) A second mortgage (a.k.a. traditional home equity loan); and
2) A home equity line of credit loan.
A second mortgage is a loan where the lender lends you a lump sum, based on your home’s equity, and interest starts accumulating once the loan is issued. A home equity line of credit loan, however, is a loan where the lender presents you with a credit card or checkbook that you can use to make purchases. Just like a second mortgage, the amount you can spend is based on your home’s equity. But unlike a second mortgage, interest on a home equity line of credit loan doesn’t start accumulating until you make your first purchase with the card/checkbook.
Both home equity loan types are feasible means to utilizing your home’s equity.
Which type of loan you choose is up to you and your specific financial needs. Both loan types are primarily low interest loans and, for most home equity loans, the interest you pay is tax deductible.
However, it is important to know that when you take out a home equity loan, it means the lender can reposes your home if you default on your payments. In other words, if you don’t pay your home equity loan in full or default on too many payments, the bank or lender can take away your home and use its current value to pay for what’s owed. So it’s crucial that you maintain your loan payments. A home equity loan is a great financial resource, but if you don’t pay it back, it could end up costing you your home.
Purchasing a home is a venture worth taking. The appreciation of your home’s value and the equity you can build make your home a profitable investment that can’t easily be matched.
For more articles and suggestions, visit http://www.bills.com/home-equity-basics-article/
Watch the video related to home equity
A home equity loan and a home equity line of credit both provide money from the value of your home. But each one has its pros and cons.
Help answer the question about home equity
Home equity ?I bought and sold a home for my daughter using a home equity loan from my home. After selling the home, I put the equity back into my home (and still pay on it). My taxes are reading that by selling this home, I received income – but it's not. Actually, I lost money… anyone have suggestions?
If your goal is to pay off your existing loan, your only option is to refinance. A HELOC is essentially nothing more than it sounds – a line of credit backed by your house and therefore with a lower rate than unsecured instruments like credit cards. You would use a HELOC if you were satisfied with your current mortgage rate and wanted to consolidate a bunch of payments into a single one with a more attractive rate.
So, when you refinance your home at a better rate, property taxes and insurance (both types: mortgage insurance if less than 20% equity and homeowners) will both be components of your "PITI" payment (principal, interest, taxes, insurance, [mortgage insurance])
Congratulations on buying your first home! Owning a home is a good, if major investment. The key to it value is equity. In terms of home ownership the equity in your home is the difference between the market value of your home and the outstanding loans on your home. For example, let us say you bought your house a year ago for $200,000. Let's say you made a down payment of $40,000 and got a mortgage for the remaining $160,000. Now, during the last year lets say that real estate prices in your neighborhood rose 10%, plus through your monthly mortgage payments you have reduced your home loan by $6,0000. So lets put this all together; due to the rise in real estate prices your house is worth $220,000 (remember they rose in your neighborhood by 10%,) and outstanding mortgage is $154,000 (you have been paying it off,) so subtract the mortgage from your market value (220,000 – 154,000 = 64,000/
so your equity (answer to #1 – the monetary value of difference between the market value of you home and outstanding debt on the home) is $64,000. This equity is what you can use to get a second mortgage. Sometimes people do this in order to undertake major improvements to their home. For example, if you wanted to add a solar heating system to your home, this could cost about $50,000. Very few people have $50,000 sitting in the bank, but as we noted above you have $64,000 in equity in your (imaginary) home. You can use this equity to go to a bank and get a second mortgage for $50,000 (this is called a loan against your equity.)
Now once you sign a loan agreement, you are borrowing money against the value of your home and paying interest on that money. But interest rates change. So perhaps 3 years from now, interest rates have dropped. Your original mortgage was (we will pretend) at 6.5% and your (imaginary) second mortgage (that you used to install solar heating) was at 7%. But over these last three years interest rates have dropped (because we elected a Democratic president who rebalanced the budget and began to pare down the National Debt,) so now home loans are offered at 6%. You go to the bank and "refinance" your house by getting a new loan (at a lower interest rate) that allows you to pay off your two older loans. Sometimes, when owners refinance they also "take out" equity by increasing their mortgage, ( remember on your "imaginary" house you added your solar heating which adds value, you continued to pay off your mortgage, which decreases your debt, and, perhaps, real estate values continued to rise in your neighborhood, so when you come to refinance, the market value of house may have grown to $290,000 when you refinanced, so you may decide to have a $200,000 mortgage on your home.)
so in conclusion:
1) equity is the difference between the market value of your property and the outstanding debts on your property.
2) homestead is the legal term (from the old Homestead Act of 1862) for your title to your property.
3) refinancing is when you want to get a new loan (usually at better terms) on your property in order to: a) retire older loans at higher interest; b) "take out" some of the equity you have built in your home by paying off your loan and having property prices rise.
Here is a site for California (I don't know where you are) for preparing your homestead declaration:
https://www.1stoplegalforms.com/FormLs/LFL_0101.asp
And finally, yes it is normal for loan papers to be "sold" at discounted prices among financial institutions (this is exactly how a lot of giant finance house like Lehman Brothers or Goldman Sachs started out buying and selling loan papers.) This sale cannot change the terms of your loan, only the final receiver of the loan money. There is an especially big market in second mortgage papers. Companies like Fannie Mae make a lot of their money in this trade. Anyway, sorry for being so long, I hope this helps you a little, one word of advice – for your own economic interest, do not totally mortgage your property (always keep a margin of equity) this leaves you some "emergency" collateral, and helps ensure your title to the property. Good luck.
what kind of mic are you usings it sounds really good?
Hello, what happens if an identical house is sold for 500k. Could the bank ask for money back (75% of 500k) immediately?
No it is not, the vale of the house is always fake, the bank might say 1.5mil, but if you can only get a bit or price of 1.3mil then it is vale is 1.3 mil. If you get 1.7mil then it’s vale is 1.7 mil.
i do not want to sound like a nay sayer but besides you building a hippie fallout shack? that could be an eye sore. what do you have to offer? trade pinch of my land for ? your happiness? safety? What will you be doing to earn your keep? or you just want to build then have me run room service, laundry, shopping, ect… on my dime? It doesnt seem like your question/request is worded well enough. first you should be greatfull, You dont even say thank you for consittering, have some "money in the bank/skilles something to offer. the worlds full of slakers we call them our grown kids and i rather pay there way through life then someone that only seems out for him self! if the world came to a survivlist way(it will) you wont get very far without something to offer! good luck!
I would have to agree with the lawyers. Yes, ethically it's wrong–but legally, with the will–you had to be more careful.
I would try to compromise with the older sibling or challenge it saying that the will is outrageously unfair and absurd.
(That’s because you don’t ACTUALLY have that 1.5 mil yet, you have it when you sell the house) No you won’t because u can not know its price untill someone pays you a price.
Question:
bank says you can borrow up to 75% of home’s worth=$1.25m
but in this case, you can only borrow $375k because of mortgage?
If you did not have mortgage, would you have $1.125m is cash and liability?
That’s mess up you know. It causes recession and massive corporate bankruptcies. This country… We got idiot bankers, and greedy executive screwing everything up. Now, they can’t fix it the way it was.
We will be heading dark ages in few years.
The only way to change the will is to contest it. That will get messy, and possibly expensive. The home equity should be paid pursuant to the contract between your brother and he.
Good Luck.
what is the title of the previous part and the title after this part….kindly answer…
0_0 do you have ALL of them books??
Mashallah…
i dont have not one of them…but i have loads of different ones.
its excellent that you actually read these…even if theyre written for women….that way you might know what its like from a womens perspective
by the way..how old are you?
you must be VERY knowledgeable after reading them
EDIT: lol..yes well you would wouldnt you
oh ok..quite young AND knowledgable, thats awesome – keep it up!
im 17 in 2months =]
ya but schooling should have no base on if you get a lone or not.
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In one day I was charged over $250 in overdraft fees because of a company that took advantage of my bank account- BofA charges more fees than any bank in the World!