Getting Cash Out

If you want or need to borrow more than the usual loan amount (80% of your home’s value less the balance of your first mortgage), you can find a 100% home equity loan. While few financial advisors will heartily recommend home equity financing that involves all of your available equity, there are circumstances that make this the best choice.

Should you need this level of home equity cash out for home improvements, you might discover that, after the improvements are made, your Loan to Value (LTV) is, once again, less than 100%. If you have made your home improvements wisely, the Fair Market Value (FMV) of your home should increase, providing you with new equity.

Don’t be too hasty in assuming all of the interest you pay is tax deductible. This is a particular concern with a 110% or 125% home equity loan as the portion of funds above the FMV of your home is not considered to be a real estate loan, thereby negating the ability to use the interest on these funds as a tax deduction. The best tip: Always consult with a tax advisor before borrowing or, at least, before filing your current year income tax return.

Whether you want a fixed rate home equity loan or an interest only home equity loan, the amount of cash out you might receive depends on –

• The amount of the total equity in your home; and
• The level of Loan-to-Value (LTV) your lender allows.

Second, find one or more equity loan offers you like. If one has a maximum loan-to-value of 80%, multiply your estimated FMV by 80%, and then subtract your first mortgage balance. The result is the usual maximum amount of cash out you can get with many programs. If you like another product in your home equity loan comparison that allows you to borrow up to 90% of your FMV, use the same math substituting 90% for 80%.

Example: FMV of your home: $250,000

1^st Mortgage balance: $120,000

Your equity (total): $130,000

Home equity loan max. LTV: 80%

Calculation of equity: $250,000 X 80% = $190,000

Maximum cash out: $190,000 - $120,000 = $70,000

Spend the time to perform a home equity loan comparison to find the home equity services that give you the cash that you need.

You know you have value (equity) in your home, but you may not know how much or how to calculate home equity. Since all home equity loan decisions are based on this value, you should know how to estimate the equity in your home. Here’s how to do it:

Your home was worth what you paid for it when you bought it. Since then it has increased in value and you have also made some mortgage payments, which has reduced your loan balance. If you estimate the current Fair Market Value (FMV) of your home (the price someone would pay you for it right now) – be realistic, we know it’s your “castle” – and subtract the current balance of your first mortgage, you will have a good idea of the value of your equity. For our example, if you paid $200,000 for your home five years ago we'll say it's now worth around $235,000. If your first mortgage balance is $145,000, your equity would be $90,000.

If you’re unsure of the FMV of your home, use the Internet, a local real estate broker, your local library or your loan officer, who will be able to provide you with information relevant to recent selling prices of similar homes in your area. This data will give you a reasonable idea of the FMV of your home today. You will be able to get home equity cash out equal to a percentage (or sometimes all) of your available equity in your home.

Home equity loans for bad credit borrowers are available from a number of home equity companies. As you will learn when you get home equity quotes, the interest rates will be higher than those offered to borrowers with excellent credit scores. Home equity mortgage rates fluctuate just like first mortgage interest rates, depending a great deal on your credit score. You may also be more restricted in the loan-to-value (LTV) allowed by many lenders. Instead of being able to borrow up to 80-90% of your home’s Fair Market Value (FMV), you may be limited to 65 to 75% LTV. Depending on your first mortgage balance, this may or may not pose a challenge for you. You might even find a bankruptcy equity home loan, assuming you have been discharged, are re-establishing your credit, and have sufficient equity to make the loan work. You will probably be restricted to around 55 to 65% LTV if you have only recently been discharged in bankruptcy so you’ll need a decent equity position to participate in this loan.

As always, use the Internet to search for fast home equity loans that “fit” your situation. Getting a home equity loan online may help make a streamlined process move even faster. Just be realistic. Don’t expect to receive excellent interest rates and a 100% home equity loan. Depending on your credit status, though, you may still find a reasonable home equity loan that will work for you.

No doc home equity loans are available and you can get cash out up to your available equity. Most home equity lenders realize there is a higher risk with no doc loans and they usually price them a bit higher than full documentation loans. Be sure to shop around to get a variety of home equity loan quotes to find the best choice for you.

By definition, a home equity mortgage loan provides you with cash out. There are, however, a few situations when cash may not be available to you by your choice. For instance,

• You refinance another home equity loan to get the lowest home equity rates. If the balances are equal, all potential cash out will be used to pay off your present loan.
• You are using home equity services for debt consolidation and your total debt balances equal the amount of your loan.
• You have other liens on your property (real estate tax, mechanic’s lien, IRS, etc.) that equal your new loan amount.

Home equity cash out is almost always available for home improvements or any other “worthwhile purpose.” Home equity loan rates are normally not based on your purpose for the loan. Likewise your ability to get cash out is not affected by the reason for your need for funds.

In fact, home equity banks and lenders are thrilled when borrowers tell them their purpose is to make home improvements. Since their approval amount is based on the value of your home, if you are going to use the home equity cash out to improve the property, your lender’s lien position will be also be improved since the value of your home should increase. Home equity financing can be used for home improvements, bill consolidation, school tuition, and almost all legitimate discretionary purposes. But home improvements are perfect reasons because home equity interest rates are low, home equity fees are usually reasonable, and using home equity for improvements only increases your equity.

If you are looking for a bad credit home equity loan, your chances of being approved and the terms you might receive should also be bettered if your purpose is to improve your home. Should you want a 100% home equity loan, using your cash out for home improvements, once again, can only help your chances of being approved for the loan you want.

There are a number of good reasons to use home equity servicing to generate cash that you need. If your credit is acceptable, you can find 100% home equity loans. Good home equity management dictates that you should use the cash out for worthwhile, not frivolous reasons.

How do equity loans work? You should understand the process along with the pros and cons. Many people wrongfully assume they automatically have a home equity loan tax deduction for all rates for home equity loans, including all interest paid. Unfortunately, this is not true.

If you want to be comfortable deducting your interest paid, one reason for borrowing should be “home improvements,” which are specifically noted as a good reason by the Internal Revenue Service. Another good reason to use home equity cash out is high rate debt consolidation. If you’re paying 15 to 21% interest on plastic card balances and can receive 8% on a home equity loan, you will save considerable money every month if your credit card balances are rather high.

Another good reason to use these funds is for deposit money on another real estate purchase. Many people have used this plan to purchase a second, vacation, or investment home.

These are all popular and good reasons to take cash out from a home equity loan. As always, you should use this ability wisely and for reasons that improve your quality of life in financial areas.