justin narin asked:


If you are considering taking out a secured loan against your home, two of your options are home loan mortgage refinancing with cash-out or home equity loans. Depending on your particular situation one may be better for you financially that the other.

Cash-Out Refinancing

A cash-out refinance is refinancing your mortgage for more than the current balance on your first mortgage. Home loan mortgage refinancing usually has a lower interest rate than home equity loans, but if you borrow more than 80% of your home’s value then you may have to pay private mortgage insurance. If you have had your mortgage long enough that you are paying more principal than interest each month or if you currently have a good interest rate, it does not make much sense to refinance and a home equity loan will probably be a better option.

Home Equity Loan

A home equity loan is a loan on the difference between the market value of your home and the balance that you still owe on your mortgage. As a separate loan in addition to your mortgage, you do not usually pay the closing cost associated with a mortgage and the interest is usually tax deductable. Home equity loans are a good choice if your penalties for pre-payment on your original mortgage make refinancing impossible.

Which is Best?

Investments in the value of your home, starting a small business, or life-saving medical treatment are all good reasons to consider a cash-out refinance. However, you may end up paying more for your total interest than if you refinance your current mortgage at a lower interest rate and take out a home equity loan for a shorter term. Your final decision will depend on what you can afford for your monthly payments and if you are comfortable paying a larger total interest in exchange for lower monthly payments and lower interest rates.

If you are interested in debt consolidation, you may be able to get a lower interest rate with a cash-out refinance, but you lengthen the amount of time over which to pay off your loan. You might want to look into a home equity loan with a short term or simply re-budget and tackle your highest interest debt first and try to pay off your credit cards. This last method will probably same you more money in interest paid over time.

Remember that whether you opt for a cash-out refinance or a home equity loan, in either case failure to repay your loan can cost you your home. For more articles on Mortgage Refinance, visit: http://www.bills.com/mortgage-refinancing/



DANA

Christen Scott asked:


Second Mortgage Home Loan is given on the basis of the equity of your home. First of all you must understand what is the equity of home? Equity is the value of your home minus the loans you owe. Hence, you get amount for this loan on the basis of the equity of your home. Most of the times, this loan is used to consolidate the debts of high interest rates like credit card other then this, this loan is used for home renovations, improving property, raising funds, starting a new business, or buying a new property etc.

Second Mortgage Home Loan should not be confused with mortgage refinancing because these are two different loans. Mortgage refinancing is the replacement of old loan for new one at new conditions like interest rate and duration etc. But second mortgage loan is the new loan other then the loan you already owe to the lender. You have to deposit an additional monthly installment for this loan. Therefore you must calculate before applying for this loan that whether your pocket allows or not.

There is no such rule that you have to borrow this loan from same lender rather you can get this loan at competitive rate with other lenders. Duration of this loan depends on the repayment term. If, you want to get rid of the loan early, then you must pay heavy monthly installments and small installments for long duration which may be 15 to 20 years. Interest rate for this loan may be higher than your first mortgage but it is lower than unsecured loans.



HARRY

Brad Stroh asked:


Qualifying for a Mortgage

Before you buy a home, it is crucial that you weigh how you can afford to pay for it. You don’t want to waste time or money by bidding on a house that you cannot afford or by applying for a loan that is beyond your means to pay month after month and year after year. Figuring out your budget for your home will make it easier to get the right loan and also to know what changes you may need to make to your finances and to you credit profile.

As a standard rule you are advised to buy a house worth no more than 3 times your gross household income. Use this figure if you have some other debts, such as student loans, car payments, or sizable credit card balances. If you have no other debts, you likely can afford a house that costs as much as five times your annual household income.

When potential lenders review your ability to qualify you for a home loan, they are going to pay close attention to your debt-to-income ratio (DTI). To determine your DTI, start by computing your total net monthly income. This includes your monthly wages and any overtime, commissions or bonuses that are guaranteed; plus any pension monies or monies that come from alimony or child support, if applicable. If your income varies month-to-month, calculate your monthly average over the past two years. Don’t forget to include any other monies earned, whether from rentals or any other additional income.

To determine your monthly debt obligations, make sure to include all of your credit card bills, any loans, such as automobile, student, or personal and the amount of the new mortgage payment in the loan that you will apply for. Make sure to include your monthly rent payments if you rent. When you are adding up your credit card obligations, use the minimum required monthly payment. Divide your total monthly debt obligations by your total monthly income. This is your total debt-to-income ratio. The lower your DTI, the better. A high DTI can prevent you from getting the loan. It also can be a warning sign that even a loan that you qualify for could be a serious burden to make each month.

Most lenders traditionally will qualify your for the loan with a DTI of 28% to 44% of your monthly income. In other words, if your monthly income is $4,000, the lender would ordinarily want you to pay no more than $1,760 (.44 x $4,000) toward all your debts. Some sub-prime lenders will allow borrowers to have DTI ratios as high as 55%.

You may have compensating factors that will allow you to qualify for the loan, even with a less than desirable DTI. For instance, f you have an excellent credit record, a lender might allow you to go more deeply into debt. Just how high a DTI you can have and still qualify for the loan will depend on such factors as the amount of your down payment, the interest rate on your new mortgage, your credit history and score, and how much other debt you are carrying.

Bills.com has mortgage calculators that will help you quickly determine monthly payments on different size mortgages so you can learn how much house you can afford. All calculators are not created equal — but all of them are free. You should investigate different scenarios, so you can see how the amount of down payment, the length of the loan term, and the interest rates will affect the size of the monthly payment. (http://www.bills.com/mortgage/)

Before you start shopping for a loan and a home, you need to know some terms you will encounter:

Pre-qualification. Getting pre-qualified for a loan is a good thing, but it is NOT a guarantee that you will actually get the loan. To get pre-qualified, you will speak to a lender and go over the standard questions: your income (and DTI), your credit rating, and the size of your down payment. Prequalifying lets you determine exactly how much you’ll be able to borrow and how much you’ll need for a down payment and closing costs. Still, the lender is not asking to see the proof of your income claims, so any ‘approval’ you receive you can vanish into thin air.

Pre-approval. If you are serious about moving forward, it is recommended to get pre-approved for a specific loan amount. To get pre-approved, the lender will actually verify your credit and income documents, rather than relying on the numbers you provide them about your income and debts.

The documents that you will need to assemble for the lender to get your pre-approval are: Federal Income Tax Returns and W-2 forms for the past two years; the two most recent months’ pay stubs with your name and year-to-date earnings; proof of any other income you claim on your application, such as alimony, pensions or Social Security income; a list of all your creditors that shows the total balances due and the minimum required monthly payments, and proof of all assets, such as savings, stocks and bonds, or any other real estate owned.

Funds to be used for a down payment likely need to be in your account for two months before you can use them, IF they are coming from someone else, like your parents. Just having the funds in your account is NOT enough. Lenders will demand that any funds used to satisfy down payment and closing costs must come from your own resources. Funds must be ‘seasoned’ in your possession for at least two to three months. You can prove the funds are ‘seasoned’ by supplying two to three months of bank statements or documentation demonstrating that funds have been in your possession.

Almost every lender is going to ask to see the credit reports supplied by the three main credit bureaus: Experian, Equifax, and TransUnion. The credit report will show your financial history, showing the different transactions you have made, as well as providing your credit risk score. This score is known as the FICO score, named after Fair, Isaac, & Company, who developed many of the computer scoring models. It can be almost impossible to fully understand why your FICO scores is what it is, but key factors that are weighed in determining your score are: How timely you have paid your bills, how much debt you are carrying, how much of your available credit you are using (the size of the balance compared to the size of the credit line), how many credit cards and loans you have open, how many people have looked at your credit report recently, and if there is any negative information about in the public record area of your report. This area is where a judgment against you would appear as well as items like tax liens filed by the State or Federal Government.

The higher your credit score, the easier it will be for you to qualify for a loan. If you routinely pay your bills late, you will have a lower score, in which case a lender may either reject your loan application altogether or insist on a very large down payment or high interest rate. Because your credit history has such an important effect on the type and amount of mortgage loan you’ll be offered, make sure that you check your report regularly. If you find it necessary to clean up your report, you will want to do so before you apply for a mortgage. Almost every lender is going to ask to see the credit reports supplied by the three main credit bureaus reporting your file: Equifax, Experian, and TransUnion. The credit report will show a history of your financial transactions as well as providing your credit risk score. This score is known as the FICO score, named after Fair, Isaac & Company, who developed many of the computer scoring models. It can be almost impossible to fully understand why your FICO score is what it is, but key factors being weighed in the scoring are: How timely you have paid your bills, how much debt you are carrying, how much of your available credit you are using (the size of the balance compared to the size of the credit line), how many credit cards and loans you have open, how many people have looked at your credit report recently, and if there is any negative information about in the public record area of your report.

At the end of the day, if your mortgage and home fit into a well thought out financial game-plan, home ownership can be one of the most rewarding investments in your portfolio. Be sure to consider all of the issues, and make sure you get the right loan for your needs.



JULES