• Want to remodel your home?
• Want to update your kitchen?
• Need to add a new room for the baby?
• Need a bigger playroom for the kids?

A Home Equity Line of Credit may be your answer.....

General . . .

A home equity line of credit loan is a credit line secured by your real estate. Equity lines work like a revolving credit line - you use the money, pay it back, then use the money again. Generally, you are given a book of checks to write against the line. The amount of your credit line is based on the amount of equity you have in your home and the guidelines set by the specific lender you choose. Home Equity credit line products are probably the most diverse - each lender has their own specific guidelines and limitations. Line of credit products usually work best for people who intend to pay the loan back quickly or who need extremely low payments for a shorter period of time. Below we have highlighted some of the differences between a line of credit and a more traditional mortgage including how you repay the loan, qualifying and processing, and how your loan amount is determined. We have also included a list of advantages and disadvantages.

Call today for current home equity credit line rates  208-919-3248

Advantages . . .

• Re-usable credit - if you manage it right you will not need another equity loan for a very long time
• Lower closing costs
• Lower required monthly payment
• Faster processing time from application to close
• Extremely flexible
• You are not required to take all of the money at once - if you open a line for $10,000 you can take $100, leaving the rest to draw against.

Disadvantages . . .

• Will not pay off in a set period of time
• Very little of required payment goes toward principal - must make larger payments to take advantage of revolving benefit
• Higher rate (typically)
• Too flexible - sometimes difficult to properly manage

Loan Structure . . .

A home equity line of credit is processed and underwritten in much the same way as any other mortgage: the lender will look at your credit, property value (appraisal), employment, title and assets. The impact of each is outlined below. The major differences lie in how much you can borrow and how you pay it back.

Qualifying/Processing . . .

Credit: A Home Equity line of credit is available for almost any type of credit, with the loan amount and pricing adjusted for higher credit risks. This type loan is usually most impacted by your credit score. Some companies use the Fair Isaac Score, others use beacon scores. Your score usually determines how much you can borrow and your rate and fee amounts.

Appraisal: There is a great deal of variation from company to company regarding your home's value. If your credit score is high enough, a lender may not even require an appraisal. Most, however, do. Many lenders require only a "drive-by" appraisal where the appraiser gathers information about your home from your county and does a comparison based on recorded information with only an exterior evaluation (when they "drive by" your home). These type appraisals cost less than a full appraisal. Some lenders will require a full appraisal. As you shop for a loan, be sure to ask which type appraisal will be required with each offer.

Title: You may be required to obtain a full title search with full title insurance. Some lenders, however, only ask for a quick title search and limited insurance. The limited searches and policies are usually less expensive than full. Again, be sure to ask which type will be required.

Employment/Income: Some lenders will not require income documentation if your credit score is sufficiently high to meet their guidelines. Others may require extensive documentation. If you are self-employed and have difficulty documenting your income and your credit score is high enough, you will need to find a lender to accommodate. Your rate and fees will usually be higher if you are unable to document your income.

Call today for current home equity credit line rates.

Determining Loan Amount . . .

There are thousands of different lenders and thousands of different ways they come up with a loan amount for you. Some will use your credit - if you score XXX then you will receive a line for YYY. Others will look only at the loan to value: lend only up to 75%, 80%, 85%, 90%, 95% or 100% of your property's value. Some may limit arbitrarily, only offering $25K, $35K, $50K or some other amount. Others may even limit according to a percentage of you annual household income. Be sure to ask your broker/lender how your loan amount is determined for the loans they offer.

Repayment . . .

How you repay your loan is the single biggest difference between a traditional mortgage and a home equity line of credit. A traditional or closed-end loan (versus open-ended credit) is set up to be repaid within a specific period of time according to an amortization schedule. Every month you send money that will be applied to principal and interest and after you've sent payments for a set number of years, the debt is fully repaid. Lines of credit usually break into two parts: the draw period and the repayment period.

During the draw period, you can continue to use any available credit on your line while continuing to make monthly payments. The draw period usually lasts 10 years. At the end of that time, you then are given a set number of years to repay the remaining balance in full without further draws. The repayment period is usually 15 years. Remember, you must make payments for the life of the loan - the amount of the payment is another interesting twist with credit lines.

Most home equity line of credit works just like a credit card: the interest rate is variable (you have a set margin over the prime rate) and your payment is based on a payment factor. Payment factors are different from company to company but are usually between 1% and 1.5%. You multiply your average daily balance for each month by the payment factor to determine the payment amount (for example, if your average daily balance was $10,000.00 and your payment factor 1%, your monthly payment is $100.00). Interest is subtracted from your payment and the remainder applied to principal. Your payments go down every month because the outstanding principal balance changes with every payment. If you draw money from the line of credit, your payment will go up. Because of the way payments are structured, you will not repay your loan by making minimum payments - you will need to pay more than the required payment to pay off the loan.

Other lenders will base the monthly payment on a set amortization, recalculated every month or quarter to adjust for the changing balance and/or interest rates. Again, your loan will not be repaid in full in a set period of time. There are other payment schedules, but these two are the most common.

Some of these products begin with a rate as low as 4.95%

Call today for more information about a Home Equity Line of Credit and the current home equity credit line rates.
208-919-3248