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IRVIN
Most, emphasis on most, HELOC’s will only loan 75% of the value of the house. If your house might be worth $25,000, you would be at 80% of value, and probably won’t get the loan, especially considering your credit score.
EMILIO
It is actually often easier to qualify for a home mortgage than an equity line of credit. With your score you should qualify for a loan for 80% of the value of your home, but remember closing costs come out of it.. you might net somewhere around 17k assuming a 25k value. See if the seller will take a note for the remaining balance for the other house. Use any rental income to pay off that second as quick as you can, and then start paying down your home mortgage asap..
ERNIE
GREAT idea but there are a few things you need to look into first. If you own your house free and clear then you have 25000 equity that is just stilling there and not growing real fast. Borrowing 70% of that equity and investing it in another property will allow you to leverage those funds and increase your rate of return. But you also increase your risks and to justify that you need to do some research. Now is a very good time to do this IF you are in the right location and find the right property in invest in.
First have a realtor pull some sales AND rental comps for the type of house you are looking at buying and then renting and see how the cashflow numbers work out. Also you need to go to SEVERAL banks in your area and interview them about giving you a HELOC, (Home equity Line of Credit). Ask about originazation fees, interest rates, Loan to Value ratios, (LTV) and shop around. When you talk to these banks remember that you are in control and you are deciding who will EARN your business. DO not be afaid to ask hard questions. They are selling a loan product and they will be making money off the interest they charge you so they should work hard to earn your business.
The better prepared you are the higher the chances of you making this deal work. Get the Heloc set-up and ready to fund and then start shopping for properties that will positive cashflow AFTER all expenses on day 1. If the deal will not cashflow then you are better off waiting for a better deal of expanding your search area to find a better bargain. I just closed on a rental hosue last Monday that sold in Feb. 2006 for 300K and I paid 170K. The deals are out there and are only going to get better over the next 12 to 18 months depending on where you live. Remember that real estate is a LOCAL market and what happens here will not be exactly what happens wherever you are.
Great plan and good luck. If you need advice then email me. I invest fulltime in rental property and would be glad to help you get started on the right foot.
BERNARDO
You can read the best info about US mortgage tips here.http://all-mortgage-calculators.blogspot.com/2007/10/us-mortgage-loans-types.html
DONNY
Since your credit score is 550, you fall in the “sub-prime” category. Being in the sub-prime category, you’ll have a hard time with getting a favorable interest rate. (By the way, I presume you’ve already checked your credit score and you’re satisfied that your credit history is correct).
As of November 9, 2007 the national average APR (annual percentage rate) for borrowers with FICO score 620-639 is 13.207% for 15-year fixed rate home equity loan, and 14.294% for HELOC. Since your credit score is below 620, you’d probably have to pay at least these rates.
If you take out a 15-year home equity loan of $20,000 at the fixed rate of 13.207%, your monthly payment will be about $256, or close to 26% of your montly income. You will not have to pay PMI (private mortgage insurance) since your LTV (loan-to-value) ratio is exactly 80%, ie 80% x $25,000 (market value) = $20,000. Your home equity loan interest is tax deductible.
It’s generally not advisable to use HELOC as a long term loan because HELOC is on adjustable rates that fluctuate from time to time according to market conditions, and so is more risky, and makes your monthly payment planning uncertain.
Instead of using your existing home to take out a home equity loan, you may consider taking out a mortgage on the second home you want to buy. For credit scores 500-579, the national average APR for a 15-year fixed-rate mortgage is 10.994% as of November 9, 2007. This is cheaper than taking out a home equity loan on your existing home. For a 15-year fixed-rate mortage of $20,000 at 10.994%, your monthly payment will be about $227, or about 23% of your monthly income. But your maximum loan amount will be $16,000 (= 80% x $20,000) only, if you want to avoid PMI. The lender’s fees and other closing costs will further reduce the net amount of loan you’ll receive. Your mortgage interest will be tax deductible.
You’ll have to shop around to find the financing option that suits you best.
Although credit scores are important, they are not the only deciding factor that lenders use when approving a mortgage. The FICO is one of the factors, not the only one.
Your low credit score can be balanced by other “offsetting factors”, eg an overall low debt-to-income ratio, large cash reserves, or large down payment. Your low credit score is not an insurmountable obstacle. Therefore it’s important that you don’t assume your low credit score will prevent you from getting a mortgage. Don’t prejudge your situation.