The Handy Investing Answer Book. Paul A Tucci
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many U.S. homes received foreclosure filings in 2010?
According to RealtyTrac, more than 3.8 million foreclosure filings—including default notices, scheduled auctions, and bank repossessions—were reported on a record 2.87 million U.S. properties in 2010.
How long does it take for a home to be foreclosed?
Within 15 months after you stop paying your mortgage, your home reverts to the lender.
What states have the highest rate of foreclosure?
Nevada, Arizona, Florida, California, Utah, Georgia, Michigan, Idaho, Illinois, and Colorado have the highest rates of foreclosure.
What does the foreclosure rate mean for American home ownership?
The foreclosure rate means that home ownership most likely will fall to its lowest level since 1960, when 61.9% of American families owned their own homes, and perhaps even lower over the next few years.
What is a “home equity loan”?
A home equity loan, or second mortgage, is a loan financed by a bank that allows a homeowner to receive a lump sum cash payment for the value of the equity he has accrued in his house, or leverage the accrued equity of his principal residence. After you have been living in your house for some time, assuming that real estate prices have been increasing, you begin to build equity in your house. Banks allow you to borrow from them this value, or equity, in the form of a line of credit that can be paid off over time at the prevailing interest rate when you secure the loan. Many people use this loan to make necessary improvements on their home, which may increase the home’s value. As the house appreciates in value from the time of purchase, and the value of this asset changes over time, the house’s equity is the value of the house (according to the lender) minus the value of any previous loans or mortgages on the property. This value can be loaned back to the owner, to make improvements to the property, consolidate debt, or pay other expenses. You may borrow a certain percentage of this equity. You must pay fees and closing costs, and must pay off this loan, including interest, according to the terms set forth by the lender. Typical terms to pay off home equity loans range from five to 15 years. The full amount of the loan must be repaid if the house is sold before this term expires. The AARP reports that 16% of Americans age 50+ used their home equity to pay down credit card debt.
How does a lender know the value of a house, if it is not for sale?
In order to compute the house’s worth, lenders use a variety of data points, including recent sales of nearby property, property records, deeds, mortgage records, and current appraisals.
What is a “home equity line of credit” (HELOC)?
A home equity line of credit is similar to a home equity loan, except the lender gives you the opportunity to use all or part of the credit over a certain period of time. Lenders may offer initial low interest rates, and may attach conditions as to when the credit line is to be paid back or closed, so it is important to understand the fine print on a HELOC. The interest rate may also be fixed or variable, depending on the terms established by the lender, allowing a homeowner to access as much of the credit as he requires.
Why are home equity loans desirable to homeowners?
Home equity loans are desirable because they allow a homeowner the chance to access the equity that he has accrued in his house, rather than waiting until he sells it to realize these gains. Typically these loans carry a much lower interest rate than other types of loans or lines of credit, such as credit cards. If the loan is used to make capital improvements to the secured property, it may actually improve the value of the property. A home equity loan is sometimes used by someone who wishes to consolidate his credit card debt in favor of obtaining a lower-interest-rate home equity loan, and pay off expensive credit card balances without incurring exceptionally high credit card interest rates and other associated fees. The interest on home equity loans may also be deductible against your adjusted gross income, so please check with your tax adviser for the most current rules when filing your tax return. Many lenders offer online calculators to help a user understand how large a loan he can obtain. If you have a steady income, and control over your living expenses, a home equity line may be a good option to help solve a financial need.
Why can a home equity loan be dangerous for homeowners?
There are many reasons why obtaining a home equity loan can be troublesome for homeowners. The equity that a homeowner gains as the value of his house increases over time can be loaned back to the homeowner, and paid back over time with interest. Most experts agree that it is inadvisable to obtain a home equity loan, especially when house prices are falling. If the value of your local real estate market plummets after you obtain a loan, you could be “underwater” on the mortgage, a very dangerous financial situation in which to find yourself. Obtaining a home equity loan may not solve the initial financial problem that led you to obtain the loan in the first place. You need to control expenses and improve income. A home equity loan may also artificially create a sense of higher income, which is dangerous if you cannot control expenses. And obtaining such loans or lines of credit may help perpetuate poor spending patterns, especially if you use the credit unwisely.
What is the downside of using a home equity loan?
Some people use home equity loans to buy cars and clothes, fund vacations, or purchase second homes. This may lead to major financial problems in the future, if not correctly managed. Often home equity loans are given to people with terms that allow them to pay only the interest on their line of credit each month. This means the borrower never pays off the principal of the loan, and could end up paying a notable amount of money in interest payments. This is often written in the fine print of the loan documents, and is concealed from borrowers to make the loans appear more attractive.
Is it easy to get a home equity loan?
It is easy to get a home equity loan if you have owned your home for many years, and have a good credit history. An equity line may be obtained as soon as the bank can schedule an appraisal of your home to determine its present value. Assuming you have no other loans on the property, you can usually obtain a home equity loan in a matter of days or weeks.
What are other considerations or requirements to obtain a home equity loan?
The borrower should have a good debt-to-income ratio, and is normally required to make minimum monthly payments on the loan.
How do I determine the market price of a house?
The market price of a house is derived from the recent sale price of comparable houses (comparables or “comps”) found within a specific radius of the house, the quality of the house, the neighborhood, and the market demand for the house at that price.
What is a “home equity conversion mortgage”?
A home equity conversion mortgage is another name for a reverse mortgage.
If you have owned your home for a number of years and have a good credit rating, it can be fairly simple to get a home equity loan.
What is a “reverse mortgage”?
A reverse mortgage is a financial product for people aged 62 and older with significant home equity. The homeowner may be able to pull out this equity in the form of a mortgage, whereby the bank actually pays the homeowner a lump sum, monthly checks, or a line of credit for the amount of equity the homeowner wishes to receive. There are significant fees in order to do this, usually 10% of the home’s value. It allows a retiree to pull out equity in his home without having to incur a home equity loan, allowing him to receive additional income. The reverse mortgage is then paid off when the home is finally sold. The reverse mortgage also incurs interest fees, which are paid back when the home is sold.
What are the requirements to obtain a reverse mortgage?
To obtain a reverse mortgage, you