The Basics on Home Equity Lines of Credit (HELOC)

A home is often the biggest asset that any person will ever own, which means that over time it can be a valuable way to generate money that you need by using the home as collateral for things like home equity lines of credit (HELOC) or home equity loans. However, since these represent taking on additional debt beyond your initial mortgage, it’s important that you understand what they are and how to use them wisely to avoid getting into too much debt.

Defining the Terms

Before we talk any more about HELOCs and loans, let’s quickly define the meaning of several terms you will see in this article.

  • Collateral is a tangible object or property that you put up as a guarantee in exchange for a loan. If you fail to repay the loan, the property will be taken to satisfy the debt.
  • Equity is the difference in value between what your home is worth and what you currently owe on the mortgage.

Building Equity

There are two ways to gain equity in a home—the first is to pay off a portion of the principal balance that you own, the second is for the home to gain value. If you put a down payment on your home, you have instant equity in the amount of your down payment, and when you make your monthly payments you will be paying a portion toward the principal, which provides you with additional equity. Generally speaking, the market value of homes often increases over time, which means you are simultaneously gaining equity through that as well. Unfortunately, though, if market values for homes decline (as they did during the Great Recession that began around 2008), you can also lose equity.

Loans vs Lines of Credit

If you do have equity in your home there are two ways you can borrow against that equity to get cash: a home equity loan and a HELOC. Both are often called a “second mortgage” because you use your home as the collateral, although they may not have 30-year terms like your original mortgage.

A home equity loan is a single lump-sum amount that you pay off over a set amount of time. It has a fixed interest rate and the payments are set each month, much like a fixed rate mortgage. You cannot borrow additional money from a home equity loan. HELOCs, on the other hand, are more like credit cards with a revolving balance. You can get approved for a HELOC based on equity, borrow money against that line of credit, repay the money and borrow against it again in the future for the duration of the “draw period”, which is usually around 5 to 10 years.

Many homeowners like HELOCs because they offer more flexibility to borrow and repay as you need the money, rather than getting a single lump sum all at once. HELOCs do have variable interest rates, though, which means payments will be different depending on market rates and conditions.

In both cases you must repay the entire loan when you sell your home, so it’s best to keep an eye on the market value of your home and avoid borrowing more than you could repay if you were to sell.

4 Factors That Slow Down your Loan Processes

Surviving the real estate market is like getting into a competitive sport that requires extra effort and cash. You crave your dream house but the necessity of requirements prevents you from achieving it instantly. In order to buy your new home, you’ll need the help of a trusted home loan for easier payment.

Managing to survive mortgage processes quickly and efficiently seems impossible. With the numerous requirements and time constraints, your home loans face a number of hurdles before receiving approval.

Here are 4 factors that slow down your loan’s efficient processing:

Lacking all the necessary documents

Documents and other paper requirements are necessary for your loans. In today’s world of mortgages, documentation plays a critical role in your loan process. With the necessary documents, your loan can close easily in a matter of 2 weeks. Doing otherwise results in difficult and longer processing.

A number of mortgage underwriters are critical with documentation; they refuse to accept incomplete documents. Make sure you provide EVERY page of necessary papers to avoid frustrations in the future.

Delay in obtaining required documents

Sales contracts are legally binding agreements and follow strictly set timelines. Time is a major factor that can make or break your home loan. When your loan providers ask for necessary documents, do not delay. Time is of the essence; as the homebuyer, it is your responsibility to provide all necessary papers on time. This way, you stay track with your process and close it on time.

Surviving cash deposits

When you purchase a home, you must provide bank statements that prove your financial capability. Underwriters and cash deposits often clash with one another; tracking cash proves impossible and if an underwriter spots a large cash deposit without documentation, they will not give you credit for this deposit. You must submit the right documents and provide explanation for each deposit.

Immediately switching jobs

When you apply for a new job while your loan is processing, you’re at risk offacing delays or loan denial. Making the transition offers numerous setbacks with your home loan. Most underwriters will require a month of pay stubs, which delays your loan by six weeks.

Close your loan faster by avoiding these factors that slow you down. At Altius Mortgage, we make sure you receive your loans efficiently and quickly. Call us now for more information on our services.

Avoid These Common Pitfalls When Getting a Home Mortgage

Buying a home is an exciting time, but it can also be a stressful time when you have to fill out a lot of paperwork and make decisions that can impact you for several years, and even decades, into the future. Before you sign any closing documents, here are some of the most common pitfalls that homebuyers encounter during the mortgage loan process and some tips on how to avoid them so everything goes as smoothly as possible.

Never Sign Blank Documents

A mortgage is a significant investment and a big financial commitment, so before you sign any documents related to your loan or the purchase of your home, you need to have all the information and fully understand what your payments will be and what you are signing up for. Unfortunately there are fraudulent mortgage loan companies out there that might try to convince you to sign documents that have details left blank or that gloss over important details of your loan, but this can set you up for financial disaster in the future. Ask a lot of questions and make sure all the details are disclosed before you add a signature.

Know You Can Afford Your Payments

If your dream home has a payment that is outside of the budget you can afford, it’s best to take a step back and find another home rather than trying to stretch to buy a house you cannot afford. If you are unable to make your monthly payments, the end result is foreclosure and often damaged credit, so it’s worth it to downsize and get something you know you can repay.

Don’t Fall for Tricky Payment Schemes

It’s less common today than it was several years ago, but sometimes lenders will create very confusing loans that include low up-front payments that will increase over time, causing your payment to go up to more than what you can afford. While they may try to convince you that you can easily refinance or sell before this new payment will come due, you never know what your financial situation and market conditions will be at that time, which will determine whether refinancing or selling the home is even feasible. Don’t sign up for a loan that you know for certain you will have to change to be able to afford at a later time.

Disclose All Your Information Accurately

Trying to hide negative financial information from your personal history, or inflating numbers to get approved for a loan that is out of your reach can cause serious damage in the future, and could derail your loan application entirely. It’s safe to assume that this information will be discovered (either before the loan goes through or after, at which time it could be considered a crime of mortgage fraud), so be up front about it now to avoid those problems later.

Don’t Try to Do It Alone

There are plenty of helpful resources out there that can ensure you fully understand your options and know what to expect throughout your home buying process. Talk to a mortgage loan company today to find out more and ask about what resources are out there to help you get the ideal loan for your financial situation.

The Role of Rising Mortgage Interest Rates to Housing Prices

The Atlantic reports that mortgage interest rates will rise. But as with all volatile markets, no one knows the exact interest rate increase until the market corrects and the economists are just looking back.

Many Americans find mortgage their biggest debt alongside student loans, and the most important one once they reach adulthood. Here at Altius Mortgage Group, we aim to help you decide onyour home buying pursuits, however the mortgage weather fares.

Inverse Proportions on Mortgage Interest and Home Price

If those who already incurred mortgage fear the rise, those who haven’t and are looking into getting a property would be thrilled to hear this. Apparently, some observe that rising mortgage interest rates affect housing prices inversely.

Housing market experts explain one way this is true.Some property sellers find it more difficult to sell once the mortgage rates are declared on the rise. To entice home buyers despite the mortgage scare, they lower property value. With the market seemingly more penetrable, the sellers get their chances to dispose their properties in the midst of the crisis while the buyers take advantage of the low downpayment.

Is This a Good Thing?

In one perspective, it could be a good thing to buy a house at a more affordable price even with higher interest rates. On a closer look, the panic only makes more losses to the seller and possibly to the buyer in the long run, but this is just hypothetical and ideal.
In reality, potential property buyers who are intimidated by the mortgage increase will try to steer away from the market until it returns to equilibrium and home prices are back to its real value. Sellers will also try to hold on to their properties a little longer until such a time theirvalues get back to safe marketing levels, that is, when they can get a higher return after waiting for the spell to end.

The truth is, there is no saying whether the housing market reduces or increases their price in tune withthe mortgage interest rates. The overall economy, changing demographics, and laws all decide what happens to the housing valuation at a given period in a specific location. Until then, you can only prepare your response.

Choose a reliable mortgage consultant to help you achieve your goals to have your dream home. If you want to learn more about mortgage loans and apply for one, contact us.