February 07, 2010

Home Equity Loans After Home Prices Falling

Home equity loan was a reliable way for homeowners to get cash, even in times of the recent economic crisis. A homeowner could get cash to pay the household expenses of the major by taking a second mortgage or home equity loans have provided home good credit and available home equity.

Until the year 2008 some of the borrower or lender can already imagine that a significant risk to home equity loans is the market will decline in value of the home. Although there is an assumption that it was the values of real estate will continue to rise. Because after all the home equity loan depends on the stability or increases the value of the home. What do you do when your home value drops? What do you do when you need a home equity loan on the real estate market while the poor?


Decreasing Home Value Survey
3% of the surveyed homeowners reported decline in the value of their homes, in February 2007.
35% of homeowners surveyed think their home has lost value, in the February 2008 survey.
64% of homeowners believe their home has depreciated in value, for february 2009.
Only 9% believe their home value has increased, in february 2009.
Survey by Reuters / University of Michigan.

US mortgage applications dropped to a seven-month low, during the last week of June 2009. The number of home loan refinancing has fallen by 30%. This statement was issued by the Mortgage Bankers Association weekly mortgage applications index, There has been a decrease in the amount of new mortgage loans, including refinancing loans.


Case Study Home Equity Loans
An example.
You bought your home for $ 300,000, in the year 2001. You put $ 50,000 down. You spend 30 years. $ 250,000 at 7% fixed-rate mortgage.
How much home equity do you have now if your loan balance is $ 222,000 in 2009, after paying your mortgage for eight years?
$ 300,000 estimated value of your home in 2001.
$ 300,000 - $ 222,000 = $ 78,000
That's what you get. That's what you can use as collateral for home equity loans, either second mortgage or home equity credit line. How much you could borrow? Consider loan-to-value ratio (LTV). Some home owners could get a loan for 125% of the value of their homes before a recession like the present. If their home valued at $ 250,000, they could get loans up to $ 312,500. However, now the limit is 100%, and even more often 80% of the value. Alternatively, you can take a supply of cash loans to some 95% of the FHA. Now, your credit and your income will be taken into account your current bank offers to your LTV, not only depends on the value of your home.

Back in 2001, where you buy your home for $ 300,000.
In the 2009, your home may be rewarded with $ 375,000 from the 2001 value of $ 300,000, at the traditional rate increases. You'll now $ 153,000 in equity, almost double the amount than $ 78,000 in equity! That's why homeowners in droves to banks for home equity loan, until the year 2008.

The sad fact in today's real estate market is that your home is worth $ 300,000 that has gone down in value at the point of $ 200,000. Lower than the debt that you have taken in the bank! That means, technically you do not have equity. So there is no way for you to get a home equity loan. That you have only two choices: sell your home and take a loss position, or wait for property values to rise again. All up to you, but consider all aspects before taking decisions.



Best Regard,
Admin of Loan Section.

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