Can I get a home equity loan after bankruptcy?Yes, you can get a home equity loan after bankruptcy. In fact, taking out a home equity loan is one of the most sensible things you can do to help yourself recover from bankruptcy. Home equity loans became popular during the real estate boom between 2000 and 2006 because of their low interest rates and more responsive payment terms, making them the best option to take if you want to pay off your other high-interest loans. Even now, they might be a good option for a post-bankruptcy condolidation of loans. But first, what is a home equity loan? As a homeowner, you could use the equity you've built in your home to secure a second mortgage. Your home equity is the sum total of (a) the down payment and monthly payments you have made toward the principle mortgage balance on your home loan, and (b) the amount that the property has appreciated in value during that period. In simpler terms, home equity is the difference between your home's fair market value (the amount your home could be sold for), and the amount that you still owe. How will a home equity loan help me bounce back from bankruptcy? Borrowers use a home equity loan for different reasons, and bankruptcy is one of the more common ones. The interest rate of home equity loans is usually one of the lowest loan rates you can get. This is why even those who don't intend to use the money as springboards from bankruptcy still take advantage of the loan. They use it to pay for new cars, to finance their children's education, or to improve their existing homes. Why is a home equity loan better than other types of loans? Experts recommend home equity loans to people bouncing bank from bankruptcy because unlike consumer loans (auto loans, boat loans, credit card, educational loans, etc), the interest you pay on a home equity loan is tax-deductible. It is also very flexible -you have the option to choose between a fixed or an adjustable rate, just like in other loans. What is a home equity line of credit (HELOC)? A HELOC is a type of second mortgage that is much like the home equity loan in principle. But while home equity loans come in a lump sum, a HELOC takes the form of a credit line (similar to a credit card), allowing you to borrow in increments up to the full loan amount. It is the amount of money you can borrow against your home equity, with pre-determined terms. Let's say you own a home worth $200,000 and there are no liens against it. You can avail of a HELOC at 80% loan to value, which is $160,000, in a 5-year period in exchange for a lien on title placed by the lender of the equity loan. With this credit line, you can borrow $40,000. The HELOC works like a regular credit card, so interest is only paid on the amount borrowed. How do I take out a HELOC? Taking out a HELOC has some of the same costs as a standard mortgage. You will usually have to pay fees including property appraisal fees, applications fees, up-front charges (such as points), closing costs, maintenance fees, and transaction fees. If you need a good size line of credit with low interest, then the HELOC is a good choice. It offers lower interest rates than personal loans or unsecured loans, making it perfect for people bouncing back from bankruptcy. But because it is quite costly to initiate, it is not a recommended loan option if you only need to borrow a small amount. |
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