• FHA Home Loans – What Are the Advantages Over Conventional Loans?

    Date: 2010.02.02 | Category: Home Equity Financing | Response: 0


    FHA Home Loans have many advantages over conventional loans and they are becoming more popular today because of these advantages.

    Whenever individuals purchase a home, they generally obtain mortgage loan, because it is easier to afford to pay back as opposed to shelling away a lot of money.

    Furthermore, mortgage loan assists you to make use of your hard earned money intelligently. Much like the idea of an investment decision, debt makes it possible to utilize your immediate money for additional monetary possibilities simply because with debt, you can spend money or even avail yourself of the services and never have to spend the entire amount right now.

    This is exactly why a mortgage loan is really a well-liked idea in residence purchasing. Because, in the absence home loan, it will be extremely hard for individuals to manage purchasing a house.

    Nevertheless, mortgage loan might help a person afford home purchasing however the total expense to get it might be sorely pricey. In case you are not conscious of the various types of mortgages as well as their interest rates, you might end obtaining a plan that will give you difficulties in the foreseeable future.

    Yes, it is certainly correct. You will find various kinds of mortgages on the market and they also have several conditions and terms. The actual rates may also be reduce for some, particularly the ones that are usually government-backed such as FHA Home Loans.

    Among the mortgages that you can actually appreciate may be FHA mortgages. FHA means Federal Housing Authority. This is a type of mortgage established through the federal government so that lenders can offer lower financing costs for the American consumer.

    Such a type of lending is tremendously popular because of not being rigorous to qualify for borrowing. So that you can understand the distinctions associated with FHA Home Loans from conventional mortgages, listed below is a comparison:

    1. Down payment. Regarding in advance down payment, the lowest required by FHA mortgage is at 3.5%. When it comes to traditional loan, the minimum amount comes to 20% (after that you are going to be required to acquire private mortgage loan insurance). This may also be in the form gift fund from family members or other sources.

    2. Pertaining to closing expense, it can be cheaper when compared with standard loans. FHA closing expense is actually greatly controlled by the HUD; traditional loans that could be higher based on the actual rates as well for the services received.

    3. The mortgage loan insurance will be cheaper when compared with conventional mortgages.

    4. The reserve requirement can be removed. There will be simply no need to pay beforehand the principal, interest, taxes as well as insurance on closing.

    5. Should you choose to repay your mortgages ahead of time, you will not need to pay for fines or penalties.

    6. Underwriting will not be so strict. It usually is provided to any person provided that they are able to pay for the mortgage and also merely along as the residence purchased is going to be utilized as primary home. They are a lot more worried about the borrower’s capacity to pay off the mortgage as opposed to spending time examining credit worthiness.

    7. FHA limitations will be determined using your monthly earnings, which can be less than the traditional mortgage. If amount you borrow exceeds the limitations set, you will therefore have to pay extra funds. However, it is possible to get another mortgage for that excess.

    Next, understand these items and also consider the actual pros and cons. Understand that conventional mortgage is not just the only mortgage you may get. It is possible to get the FHA Home Loan as long as you really can afford it.

    Click FHA Home Loans for more free advice on financing your home purchase with a FHA Loan..

    Click here if you want to know how to buy an home with Only $100 Down Payment!

    FHA Loan FAQ:

    Question: We have an FHA loan. What are the rules for us wanting to buy a home and sell our FHA funded home?
    Can we have two properties at the same time? What if we could purchase a plot of land without a loan while still having the FHA home?

    Answer: It is frowned upon but not impossible to have two fha insured loans at one time. The rule is having to move for a job and purchasing there or you have simply out grown the old home with the addition of dependents. The square feet must go up a bunch to this so you cannot buy a 1500 sft home and still have a 1450 sft home. You will also need to budget with the second home or have at least 30% equity in the first home to have any lease off set the payment in any way.

    Question: What if I don’t have a FICO score to get an FHA loan?
    My husband and I have lived in the same home for 6 yrs. We have outgrown our home due to having a baby. We don’t have good credit, and last night I went and tried to get a credit score and it said “We’re sorry we could not generate your Vantage score because there have not been any credit accounts reported or consumer initiated inquiries occurring in the last 24 months.” But it still charged me for the score? What does this mean? We want to buy a home before the April deadline on the first time home buyers tax credit. We want to get an FHA loan and we have about $4000 to put for a down payment.

    Answer: Unfortunately you may not qualify for a loan at this time, nor before the April deadline. It could take a year or more to improve your credit score to the point of being able to buy. Then you still will need to have at least 3.5% for down payment and 3% for closing costs. While the home may be getting smaller, babies don’t need much room. You need to plan how you are going to improve your credit so next year you’ll be ready to buy.

    Question: Can I refinance my currant mortgage into a fha streamline loan?

    Answer: An FHA streamline can only be done if you already have an FHA loan.

    Question: Anybody out there getting a new FHA loan after a short-sale?
    I am in an extremely bad situation as a result of my divorce and my ex-wife relocating the kids away from me. I already tried the court thing, she has more money hence the kids are staying with her. I need to move to her town now in order to be able to raise my kids, but now after the court battle my house is worth about 80k less than what I owe. What do I do? I cant afford the payments here anymore because my child support has just been jacked up, and if I stay Ill never see my kids grow up except for every other weekend. If I can short sale this place, how long am I going to have to keep all my furniture in storage and live out of a small apt until I can get new financing and take advantage of the down market to try and rebound from this?

    Answer: You will not qualify for any sort of loan for a MINIMUM of two years after the completion of a short sale, and probably longer. A short sale is ALSO a default on a major financial commitment. It will ding your credit as badly as will a foreclosure. That you work with the lender to sell the property ’short’ does not mean that the bank didn’t take that $80,000 loss. Such will be reflected in your credit rating.

    Question: IN NEED OF AN FHA SPECIALIST?
    I am looking to do an FHA loan. I am currently in receipt of Basic Allowance for House (BAH) from the military education program. Is there any way that I could use this money as part of my income? Can I give it to my parents and then have them give it back to me as a gift? I need help and no one knows the answer.

    Answer: Do you receive this BAH monthly? How long have you received this benefit.?Or is this like a lump sum you get for buying a Home. If you have been receiving this benefit for a while you can use it towards income if you can show proof that this payment will continue for the next 2 or 3 years. If not, if its just a lump sum credit you can use it as a down-payment or pay closing cost. You can also use it as reserves, it can help with your Debt to income ratio and determine ya or nay on your loan..When doing a gift FHA must see documentation where this gift is from and from who. It has to add up.

    Usually, they want to see that you have been receiving this for 1-2 years. Each lender is different, but yes if you can show that you receive this payment for however long and also get a letter from the Education program that this benefit will continue for 2-3 years you can add this to your income. Which in turn will increase how much of a home you can qualify for.

    Question: Down payment for an investment property?
    I am interested in purchasing an approx 100,000 investment property to rent out. I know that FHA does not loan money for investments, however if the person that would be living in the house was able to qualify for a small amount of the loan, say 5000 bucks would I qualify for the FHA loan if I financed the rest, and secondly if that doesn’t work how much are banks requiring for a down payment?

    Answer: FHA loans are for owner occupied residential properties only. This is not a matter of loaning money out for “investments”. Rather, the property must be 1 – 4 units, and the owner must live in one of the units. I believe there are additional rules concerning 3 and 4 units properties requiring that those units must be self-sufficient.

    Additionally, the property must be held in your name to qualify for an FHA loan. You’re not going to be able to bootstrap into an FHA loan by through the tenant having a 5.00% interest.

    If you are looking at a single family residence, there is no you way will qualify for an FHA loan. Your individual factors may allow for an FHA loan on a 2 – 4 unit property. As a final note, do not check the box indicating “owner occupied” on the loan forms unless it truly is owner occupied. The money you may save is not worth the risk of criminal prosecution.

    Also, banks usually want 20% down for an investment property. And you can’t borrow the down payment.

    Question: Any Zero down home loan out there?
    Thinking about selling but I will walk away with practically nothing. Any zero down or 3% FHA left?

    Answer: Zero down is long gone. FHA raised their minimums to 3.5%. Anyone putting down less than 20% cash down payment, with adequate funds to pay all closing costs and 3 – 6 months of reserves is now under an unusually high risk of not being funded by closing even if they are “approved” for a mortgage. Last minute “glitches” cropping up like crazy these days.

    You must have money, and plenty of it. If you do not have a down payment, you cannot afford a house, condo, or anything else these days.

    Question: I have VERY bad credit with debt – can I qualify for ANY home loan?
    I see people all of the time with houses that they own and I know as a fact they have bad credit, poor paying jobs and little or no money down. HOW ON EARTH did they get approved for a house? I am stuck in the renting game, and I am tired of it. My lease is about to expire and I want to own something but a bad credit score of 530 is haunting me! It is not a bankruptcy or anything, just a bunch of small bills here and there from my past that never got paid and some are charge offs. PLEASE tell me if there is ANY hope that I could qualify for any loan out there?

    Answer: No way at this time. You need to improve your credit score to be at least 620 for an FHA loan. FHA has the lowest credit requirement for a buyer.

    Talk to a good loan broker that is willing to work with you over a six month period to bring up your credit score. Normally I recommend that buyers should avoid loan brokers, but in your case their extra fee’s are worth it because they often are willing to work with you and help your improve your FICO scores. It won’t happen over night. Another word of advise…..pay your bills on time, 30 days late on your credit report kill your credit score.

  • Home Equity Loan Pros and Cons

    Date: 2010.02.02 | Category: Home Equity Financing | Response: 0

    Easy is quitting your job when you win the lottery or when you retire comfortably into the sunset! Hard, is the state of the general consumer in this ever confounding maze of financial demands placed upon us. Nonetheless, monetary strains will always create major demands for notes like the home equity loan, and analyzing this loan prior to obtaining it, is always indicated.

    We all want to have stability in our bank accounts and life in general but balance is obviously becoming some sort of commodity and so many of us lack it in many aspects of our lives!

    With that said, when we turn for relief from financial stress, we often look into one of our greatest assets, our house. As solid as the foundation on a new home, your equity is always there for you to tap into when times arise for extraction.

    Home equity pros and cons though need to be analyzed prior to your acquisition because this note can be really helpful to some and very hurtful in the wrong hands! First, your rates on an equity loan are much cheaper than credit card rates and many times substantially lower.

    Your rates are fixed so the lump sum you borrow has a rate that never changes via being locked at closing time. You can actually make money (a lot) if you select the right home improvements to invest your loan into. Usually, these are plumbing, landscaping, bathroom, and kitchen remodeling. Your home equity loan interest can be tax deductible but only on a percentage and not for every dollar.

    Cons associated would be keeping yourself from utilizing the money for purposes other than what it was intended from the outset! Using it on investments that have depreciation rather than appreciation can hurt your monetary landscape. Expect not to be allowed to rent out your home as many lenders frown on this and fully disallow it in the terms of the agreement.

    Regardless of your money situation, you can see that this loan can do wonders for your life and put you in a much better financial position overall. However, if you don’t have a genuine need in mind, or have problems with allocating funds appropriately, you may want to pass on this note altogether!

    Take a moment to find where the best home equity loan lenders are online. Go to http://home-equity-loan.valueprep.com for the most solid choices available to you now!

    **Attn Ezine editors / Site Owners** Feel free to reprint this article in its entirety in your ezine or on your website as long as you leave all links in place, do not modify the content and include our resource box as listed above.

    Home Equity Loan FAQ:

    Question: Can a mortgage on the house be payed off by home equity loan?
    Is it possible to pay off the mortgage with an home equity loan if the APR is less than what I am paying right now? I understand that if I refinance, there are closing costs and for home equity loan, there are none, am I correct? What are the advantages and disadvantages of doing that?

    Answer: It depends on the rate you are paying now and how long you are keeping the house . The disadvantage is that home equity loans can go up to a point where you will be paying much more than you are paying now .

    Question: Home Equity Loan…advice needed.
    I am in need of a Home Equity Loan. Does it make sense to approach my current mortgage lender? Or my bank? or a different third party altogether? Any advice out there is appreciated. My credit is not great and I need to know who would be most flexible with me.

    Answer: No way to tell. You should contact them all.

    Question: Are a Home Equity loan and a 2nd mortgage the same thing?

    Answer: No, a Home Equity is one type of 2nd mortgage, but there are many types of second mortgages.

    Question: If I have a home equity loan, can I refinance my 1st mortgage or do I have to refinance both?

    Answer: You may refinance the 1st mortgage only, however you must request and get permission from the second mortgage or home equity line of credit (HELOC). This is called a subordinate agreement from the 2nd mortgage or HELOC agreeing to stay in the second position. Your escrow officer will request this along with the title company.

    Most individuals that refinance their mortgage normally would refinance both the first and second mortgage (HELOC). This normally is more beneficial to the homeowner as in most cases the interest rate is lower on the refinance.

    Question: I recently lost my home to a foreclosure, with an existing home equity loan that I may also default on.
    My home equity loan is at 15% and I’ll never be able to pay it off. Since Ive already lost my home, does it make sense to just walk away from the equity loan? Perhaps negotiate a settlement? Hire an attorney? Anyone have any experience here?

    Answer: Probably checking into a bankruptcy attorney would be a good idea, many give a free consultation and if you have other debt as well, it is possible an attorney could try to negotiate some sort of settlement on your behalf instead of filing bankruptcy. Bankruptcy stays on your credit for 10 years so you might try an attorney first.

    Question: Does Bankruptcy chapter 7 allow me not to repay the home equity loan if there is no equity in it?
    I do have a house and pay mortgage (current). I am going to keep a house if file for a bankruptcy. On the other hand I do have an equity loan (secured by my house) from the lender other than my mortgage lender. My question is can I claim equity loan ($100,000) as unsecured – and so dischargable debt as there is no equity in my home and appraisal only showing about 250,000 value, but mortgage is 500,000.

    Answer: No. The equity loan IS secured. If you stop paying, the lender will foreclose. Period. Then the lender will come after you for the balance – then it would be time to declare BK. Talk with a lawyer.

    Question: Can a 203K Loan be used to renovate my home I currently own or is it strictly for a new purchased home?
    My home is 13 yrs old and I need more space. I want to add 2 bedrooms and 2 baths. I’m hearing it is cheaper to go out into the back yard with the addition rather than going up. I am pre-approved for a home equity loan but wondered if the 203K would allow for more money for the renovation.

    Answer: FHA’s Streamlined 203(k) program permits homebuyers to finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this new product, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser. Find out more about the Streamlined 203(k) program by reading HUD Mortgagee Letter 2005-50, enhancements to “Streamlined (K)” Limited Repair Program.

    Question: Will I be granted a equity loan directly after purchasing the home?
    I am going to buy a house this year and found a fixer-upper that makes my heart melt, but I expect to qualify for about 150k. The house I want is listed for 150K. It’s estimated value is about twice that, but is listed so low due to excessive damages. In an ideal world, I would try to get a loan for 200k, and use the excess to make the home livable. However, I don’t expect to qualify for that much (Due to my income level. My credit rating, debt, etc are great). Can I buy the loan for 150k, then turn around and get an equity loan (for maybe 50k) to clean the home up?

    Answer: No, you can’t. The problem you are going to have is that a home equity loan is secured by the value of the house that is over the value of the loan. When you buy the house at 150, that is going to be the assumed value of the house (or else why would the owner sell for that versus waiting for someone else to pay more?). So there is no equity in the house for you to borrow against.

    I will also point out that most lenders are going to want some sort of downpayment. So you may be able to get a loan against however much you put in for that, since that is equity in the home.

  • Home Equity Loan – Bad For Lenders, Good For You!

    Date: 2010.02.01 | Category: Home Equity Financing | Response: 0

    We all want to go through life without having to borrow from others. Yes, a life whereby we are fully self sufficient and have enough stability to never have to stick out our hand for a loan, right? With the expense of everyday items shooting ‘through the roof’, this notion is more like a fantasy than reality!

    The fact is that nearly 95% of all consumers are going to need the assistance of a loan within their respective lives, and many times, more than one. However, there should be no shame in going online or off, and obtaining a loan for whatever purposes you deem appropriate.

    What we truly want is a truly equitable transaction where we are treated fairly and our costs associated with the loan are minimized as much as possible! It’s a dance we are all inevitably invited to and participation is usually required whether we like it or not.

    This is because we know that many times, stagnation is one of the worst things we can do when it comes to our finances. Therefore, involving ourselves in financial transactions for our benefit, is truly indicated practically all of the time. The fact is that one of your best options for borrowing money is the home equity loan.

    Why? It will undoubtedly be one of ‘cheapest’ money you borrow in your lifetime and this creates a lot of value ‘on the street’ for millions of consumers globally. If you are a good borrower, abide by the terms and conditions put forth to you, you can benefit yourself in more ways than one with this note.

    It’s good for you because it’s inexpensive and fairly easy to obtain. It is bad for lenders because their profit margins are not derived much from this transaction due to it’s low interest rate and fees associated. Whether it’s a home equity line of credit or fixed, your in full control with this loan and stand to benefit greatly, if your intentions are to utilize it correctly!

    Are you looking for the most reputable home equity loan lenders online to apply with? If so, go to http://home-equity-loan.valueprep.com to give yourself a great start in your quest for the money you need!

    Home Equity Loan FAQ:

    Question: Should I open up a home equity loan or transfer to new credit card?
    I have $5k on my current credit card that has high interest, I’m asking should I look at opening a home equity loan or transferring to another credit card with lower interest rates

    Answer: If you can get a lower rate, go with another card – the companies are being really vicious right now, trying to beat the new consumer laws that will rein them in somewhat. A home equity loan is a second mortgage and they can take away your home. If you haven’t paid down the credit card, you stand a chance of building up that card or another and also losing your house.

    Question: I live in Texas, I want to convert my home equity loan to a fixed Mortgage with escrow?
    I heard there was a rule in Texas, Once a Home Equity always a Home Equity.

    Answer: If you want to switch your variable home equity loan/line to a fixed rate product, simply go to your bank and tell them that. You will likely get a higher interest rate as variable rates are at very low levels right now. Do you have a first mortgage on the house? If so, then you may need to refi both loans into one. If the only lien is the home equity, then whatever bank gave it to you can change it for you. There is no law in Texas like the one you stated.

    Question: What is Home Equity Loan?

    Answer: Assuming you have equity in your home (appraised value – any outstanding mortgage(s)) banks will lend you money against this equity using your home as collateral. Thus, if you do not repay the loan in full or on time, the bank can take your home away from you and sell it to get their money back. There are home equity loans and home equity lines of credit. A loan provides a lump sum payout where a line of credit offers the ability to tap equity as needed up to the loan’s limits of course.

    Question: Can’t refinance without a job? Nor home equity loan? Divorced? Its complicated.
    I have a divorce settlement that left me with my house and my ex wife relinquished the home. I have a tenant who pays my mortgage and everything is fine. Its just that when I want to make a move like refinance, I am pretty sure I can’t because I don’t have a job (unemployed). Also I would like to get a home equity small loan but I feel like again it will be the same thing. Should it be this difficult for a home that is in good standing, I have great credit too. One of my problems is that the divorce doesn’t take wife off of note. I even did a quit claim but still I am told I have to refinance to get her off the loan. But I can’t refinance cause I’m not working. Do I got the vicious circle right or should I try a different banker?

    Answer: Unfortunately going to another lender won’t solve the issue. If you can get a job in the same line of work it would help you be able to refi sooner then if you started over in a new line of work. However, since you are renting it out the rent money counts as income, you may be able to refi on that alone. It’s worth a shot.

    Question: Would it be a good move to pay my vehicle loan off (4.99% interest – 354/mo.) with a home equity 8.99% loan?

    Answer: No. Why would you pay a 4.99% interest loan with an 8.99% interest loan?! Also, just because it is a home equity line of credit, does not make it a tax credit. Only the amount of the loan that is used for the home can be written off. If you do things with the loan that are not home related (vacations, purchase a car, general living expenses, etc) are no longer eligible for the interest write off.

    Question: Home Equity Loans, Attached to Owners Property?
    Say I can’t make the payments any longer for whatever reason. Can they foreclose on my home even if my mortgage is up to date?

    Answer: Yes they can. Your property acts as collateral for both the first and second (HELOC/equity) loans.

    Question: What kind of options do I have to get a loan to fix my home but don’t have any equity in the home?
    I am refinancing my home this month from a 30 year 7.25 to 15 year 4.34 saving $86,000 in interest. Problem is that any equity I had in the 3 years I’ve been paying, I’ll lose when I tie closing costs back in. My wife and I have excellent credit and no credit card debt (only student loan, home mortgage, and 2 car payments). Looking for about $10,000. Should I go to a bank or put it on a couple cards?

    Answer: Depending on where you live you may be able to do a home equity loan or a home improvement loan. Different states have different maximum values that can be lent. If the loan can be made you might have a higher interest rate than someone who did have the equity. You do have the option of using a credit card or two. Or your bank may offer an unsecured loan. You also might have the option of using a 401(k) or some other savings account to secure a loan.

    Question: What is the best way for me to finance a new home A/C.?
    My bank was offering home equity lines of credit, but I have no equity so I don’t know that I would qualify for that and I really don’t need that much money, only $2000-$3000. I read about Title 1 home improvement loans, but not sure if I would qualify or if it is the type of loan I would need. What are my options? I have a few maxed out credit cards already.

    Answer: First save up emergency funds of 6 months total expenses as well as get out of debt then a $2-3K a/c is no big deal. Then you replace these funds back into emergency status. The next best thing is to contact your electric provider as some will install and place a monthly surcharge on the bill till paid in full. It also becomes a lien on the house as well.

  • The Oldest Business Funding Question – Debt Versus Equity

    Date: 2009.11.26 | Category: Business Financing, Debt vs Equity Financing | Response: 0

    There is a constant debate over the use of the two main types of small business loans and which is more useful. In truth they both have their place, and rather than argue over the attributes of each, businesses are wise to use a combination of both at opportune times during their growth.

    Small, or new business owners may not fully understand what the differences are, and some, new to the business financing realm may not even know what equity financing is. The term equity is bandied about in personal loans regarding the value of assets versus outstanding loan amounts placed on it, and equity is acquired much the same way in businesses. However, equity lending is not done on a personal level so understanding how the equity can be used to fund a business is something all newcomers should understand.

    The Two Sides of a Coin

    Debt Loans:

    Debt lending is the side of business financing almost everyone is familiar with. It is a straightforward loan that works much the same for businesses as it does for personal loans. It is a set amount of money “mortgaged” on the business or is other variable assets set to play out over a period of time and charged an interest structure for repayment.

    Debt lending has many qualities that make it an attractive form of business financing the first of which is the all important build up of credit for good performance in repayment. The downside of debt financing is that it requires repayment that can take away from a business’ profits, usually requires collateral in the form of business assets, or personal assets to secure the loan, and perhaps the most difficult aspect of debt financing of all: debt lenders are notoriously conservative. It is up to the business owner to prove the value of their company, their ability to repay a loan, and the financial prospects of their company.

    Another positive value of a debt loan vs. an equity loan is that the interest paid on a debt loan is tax deductible. Perhaps an even bigger incentive to choose a debt loan is that debt loans offer lenders no control over the way the business is run.

    Equity Loans:

    Equity loans are far less understood by many business owners. These types of loans can be made by private investors as well as banks, and do not involve payment structures or interest because, hang on to your seats-you don’t have to pay them back! Whoa, before you go dancing off to your local finance institution to plunk down a request for equity financing here’s the catch: Equity financing is an exchange of financing in exchange for a piece of your company. You are selling off part of the value of your company.

    This is basically like taking on a partner, although some financing is offered without actual control, you will be paying an equal amount of the profits of your future business profits to your new “partner.”

    Whether equity financing comes with an active or silent partner many business owners are reluctant to sell off part of their future profits. Another downside is that since there are no “payments” as in debt financing there is nothing to deduct on your businesses tax filings.

    Another aspect to take into consideration is that equity financing, often known as venture capital, is usually only offered if a business can prove it has the potential to use that money to create an explosive growth so that its performance escalates, thereby providing a great return on investment for the lender.

    Which Type of Financing to Choose

    Equity financing can be difficult to obtain in some situations. New businesses usually neither have the equity built up, nor the track record to judge a business’ performance to obtain such a loan. That however, is also the problem for new businesses when applying for a standard debt loan. Chances are, if you have a strong business plan, good concept, and any equity value at all in the form of inventory, building, or equipment you can find private investors that might be easier to obtain than bank debt financing.

    Equity finance companies are also more competitive and aggressive. They can take more chances because the potential for payoffs are greater. With debt financing the return on investment is a set figure-no less, no more than the original contract. With equity financing if the business really takes off the financer stands to reap great rewards.

    One argument is that debt financing, if at all available, offers business owners the most security, less potential loss over time, and no loss of control over company direction or operation. It would seem that it is the best choice in all situations, and yet businesses big and small who understand both forms of financing well know that there are times when equity financing simply makes more sense.

    If you do not have enough profit to repay a debt loan, equity financing makes good sense. It can offer you the means to expand or implement new procedures to maximize your income potential where you can then apply for a more standard type of loan. Startups with a dynamic business plan have the most to gain from equity financing. They very often cannot afford to repay a debt loan, but will in the foreseeable future have massive profits.

    Established businesses that find themselves stagnated and in need of a boost of cash to expand may not be in a position to pay monthly payments on a debt loan either. They may also find banks even more reluctant to lend money on the chance they will improve than they are willing to finance a startup. In those cases an equity loan works excellently.

    Once a company, regardless of its duration is capable of acquiring and maintaining payments on a debt loan it should seek that type of financing. Even venture capital lenders will shrink away from a company that never grows to the point where it can afford to take on a debt loan. Companies that are ever expanding and always on the edge of fiscal stability will look like risks to either side of the coin so it is important to have lengthy periods of time where the business is operating in a healthy profit margin before attempting to get further loans of either type.

    Each individual businessman will have their own ideas of the perfect combination of debt and equity financing. Businesses using both to their maximum benefits are well on their way to a solid future. Instead of thinking about the issue as debt VS. equity financing, business owners should think of it as debt AND equity financing for a secure future.

    Corey Pierce is the CEO of BusinessFinance.com that since 1995 has been one of the internet’s largest resources for business owners in search of business loans. BusinessFinance.com has developed a business funding system that matches a businesses owner’s need for capital to the approval requirements of over 4,000 business lenders. Find out more about getting your business loan approved at: => http://www.businessfinance.com/

    Debt Versus Equity Financing FAQ:

    Question: What are the advantages of using equity versus debt to capitalize a firm?

    Answer: Investors will be more attracted to the possible growth of a firm and dividends they will collect as opposed to fixed income. There’s more growth potential with shares than with bonds.

    Question: What would the advantages and disadvantages of raising capital via debt (bonds) versus equity (stock)?
    Instead of borrowing cash to pay for its investments, a firm can sell new shares of common stock to investors. Whereas bond issues commit the firm to make a series of specified interest payments to the lenders, stock issues are more like taking on new partners. The stockholders all share in the fortunes of the firm according to the number of shares they hold.

    Answer: It’s usually a question of not either or but rather a question of the optimal mix of debt vs equity. A company’s optimal capital structure is a fairly complex analysis but in general a company analyzes the risk and reward between debt vs. equity with the goal of maximizing the company’s stock price. Every company establishes a target capital structure (% of debt vs. % of equity) which may change over time based on the company’s current capital structure, future expected capital raising needs, tax position, expected need for financial flexibility etc. Generally, when a company’s debt ratio is below the predetermined optimal target % companies typically raise new capital by issuing debt…when the debt ratio is above their optimal target % they typically raise capital by issuing equity. The advantages of issuing debt are primarily that the interest is tax deductible which lowers the effective cost of the debt and stockholders don’t have to share the profits of the business with debt holders. The main disadvantages are when a company’s debt ratio increases to the point where the associated risk makes future borrowing too expensive and therefore reduces a firms capital flexibility…it can also lead to bankruptcy due to the fixed cost of servicing the debt in an otherwise healthy company.

    Question: Should a company have more debt or more equity in its capital structure? What are some limitations of utilizing debt versus equity in the capital structure?

    Answer: Excessive debt financing may impair your credit rating and your ability to raise more money in the future. If you have too much debt, your business may be considered overextended and risky and an unsafe investment. In addition, you may be unable to weather unanticipated business downturns, credit shortages, or an interest rate increase if your loan’s interest rate floats.

    Conversely, too much equity financing can indicate that you are not making the most productive use of your capital; the capital is not being used advantageously as leverage for obtaining cash. Too little equity may suggest the owners are not committed to their own business.

    Question: What is an advantage of equity financing over debt financing?

    Answer: It’s possible to raise more money than a loan can usually provide.

    Question: Why is debt financing said to include a tax shield for the company?

    Answer: People who advocate borrowing money for the “tax advantages” are bad at math. Pay $1 (in interest) to save $.28 (in taxes) STILL leaves you a net negative amount.

    Question: What were the advantages of debt financing in the early 1990’s?

    Answer: Fairly low interest rates. Debt financing was cheaper than the cost of capital. Basically, it was cheaper to borrow money than to give an investor an ownership stake in your profits.

    Question: How tax advantage is available in case of debt financing?

    Answer: The advantage is if interest expenses can be deducted from income, resulting in a lower cost of money borrowed.

    Question: Will personal credit debt affect financing of my company?

    Answer: The personal credit debt will effect financing of a company if you are a partner/owner of that company. The owners of smaller to medium sized companies may be effected.

  • Do You Know What the Difference is Between Venture Capital, Private Equity, and Debt Capital?

    Date: 2009.11.26 | Category: Private Equity Financing, Venture Capital Financing | Response: 0

    Have you ever heard the terms “venture capital” or “private equity?” Well, if you are starting a business, you will need to know what kinds of investors you need to contact and the difference between venture capital, private equity, debt capital, and how investors are categorized. You will also need to know about what conditions different forms of capital is distributed to aspiring entrepreneurs.

    Debt Capital

    What is debt capital? Well, you can think of debt financing as a loan from a bank that you have to pay back with interest. In reality, that’s exactly what debt capital is. Many entrepreneurs often resort to getting some debt financing to start their business. Debt capital, depending on its size, can be obtained from your regular bank or if it is a large sum of money, you might have to go to a special bank known as an investment bank. As far as the investor who is giving you the debt capital is concerned, debt financing is a much lower risk investment compared to equity capital. This is because debt capital is funding that is lent to you, just like as if you are taking a loan out for a car or a mortgage on your home.

    What is the interest rate on debt capital? In most cases, when in investor who invests debt capital to a budding company, he expects to make at least ten percent off of the sum that was invested into a given company. Furthermore, debt financing is usually given to those entrepreneurs, who the investor believes is most likely believes will pay the debt off in due time.

    Equity Capital

    Equity capital, on the other hand, is different because unlike debt capital; you do not need to pay anything back to the investor. Equity capital is funding that practically every company gains as its business grows. Equity is usually invested out of a particular fund and is classified as either private equity and venture capital.

    Private Equity and Venture Capital

    Basically, private equity is an equity fund that belongs to either privately owned institutions or private individuals. Usually private equity is invested by institutional investors, who are people that specialize in investing private equity from such institutions. Institutional investors usually work for a private equity or PE firm that manages private equity. Venture capital is also private equity but is managed slightly differently than private equity. Venture capital is actually private equity that is usually reserved for investments to companies that have the potential for high growth.

    For those of you who need financing and do not want to have to worry about debts, you would like to have some kind of equity capital, be it private equity or venture capital. This funding is much better than debt capital, because unlike debt capital, you do not have to pay the investors back. Instead, with equity funding, an investor makes money when a company cashes out. This usually means that when a company is bought by another company or is prepared for public offering, that is when equity firms make their money. The other side of the coin, however, equity capital is a much more risky investment for the investor than debt financing, because with equity capital, an investor makes money only with a buyout, initiate public offering or IPO, or an exit strategy.

    Investors

    As mentioned before, there are different investors and investing institutions. Some investors are wealthy individuals who invest their own money to entrepreneurs whom they like, whereas others work for institutions, such as private equity or venture capital firms and invest money from their institutional funds.

    Angel Investors

    Angel investors are wealthy private individuals who invest their money into a given entrepreneur for whatever reason. Some angel investors invest in a particular company because they might like that particular entrepreneur or feels charitable and wants to share their own entrepreneurial experience with other budding entrepreneurs to get on their feet. Other angels might invest in a company because a particular company might fit into that angel investor’s values, ethics, or other personal interests. If you have a wealthy relative and he invests in your company simply because he wants to help out a member in his family, he is also an angel investor.

    Venture Capitalists and Institutional Investors

    Unlike angel investors, venture capitalists and institutional investors do not invest their own money. Institutional investors usually work for a private equity firm and invest equity from funds that are usually parts of a pension fund or other types of funds. Venture capitalists are investors who solely invest in venture capital and work for venture capital firms.

    Where Does the Money Come From?

    Well, that is a good question. In the case with most successful private equity and venture capital firms, the money for investments comes from venture funds that these firms have raised. When a venture capital or private equity firm is successful with their investments, they are able to raise new funds for future investments. Again, as mentioned before, equity investors cash in on their investments when a company is liquidated by either being bought out from another company, etc.

    How Do You Contact Investors?

    There are many ways you can contact investors, but any way you look at it, the task involves a lot of finger walking. There are directories available that can help you find investors easily. One of these databases is the VCgate Venture Capital Database, which can be found at http://www.vcgate.com.

    Ivan Faucon writes about venture capital and entrepreneurs. He will also occasionally write about other business topics, such as consumer goods, jewelry, and internet marketing.


    Venture Capital FAQ:

    Question: Where do you find venture capital for a business idea?

    Answer: An attorney or business associate can be a good place to get a VC referral. You also can network among business executives in the field of your business. One thing to do is don’t try to get a referral to just any VC. You want one that is interested in your particular type of business. VC’s websites can be helpful at indicating their investment focus (and can show you if they already invested in a competitive venture) but they are often very broad when in reality they favor certain sectors that change over time with the business climate. Again, networking with executives that have received funding or pitched to a particular VC is the best way to gather insight if you don’t know any VCs to ask directly.

    The National Venture Capital Association has a lot of information including a listing of members. Also, Entrepreneur magazine published a top 100 VC list. But remember, target those that are focused on your business segment.

    Question: Does a person have to have good credit to obtain venture capital?
    Or does it happen that the investor thinks the idea is a smoken one and invest on that account?

    Answer: Your personal credit is not a factor in getting venture capital. But, it is more than just the “idea” that gets them to invest. They are looking for the combination of a compelling product/technology and the technical and managerial talent to make it a reality. It is often more about the team and their ability to build a business around either a new technology, product(s) or a powerful business model that it is a specific idea.

    Its important to understand that VCs primarily invest in great management teams and/or exceptional technologists. Generally, you need to have either several years of senior corporate experience in the right area for your venture or be a technical expert in the field of your products/business model. If one doesn’t have the background themselves, they need to recruit it into their team. Getting VC financing is very difficult in any environment but is particularly tough in the current economy.

    Question: What is venture capital funding? Where does the money come from?

    Answer: Venture capital funding is providing money to newly-formed companies that have not yet become successful. Venture capital investments are very risky because a large proportion of new businesses are unsuccessful. However, if the business does become successful, the venture capitalists will make a great deal of money because they came in at the beginning and generally purchased a substantial proportion of the new company.

    Where does the money come from? Most of the money comes from wealthy investors, large pension funds and hedge funds. They hire people to look for promising start-up companies, and provide them with the initial capital to get them started.

    Question: How could you get capital from an angel or VC? What would you say to these investors to attract them to your venture?
    I want to secure $1 million to pay for an expansion of my online business. Is a bank loan possible?

    Answer: Possible but unusual. Banks have preferred to loan on “bricks and mortar” companies. You would pay 7% interest if you could get the loan. Payments of $6,500 a month. Every business owner in the world is sure that his “expanded business will be able to make enough to cover this new loan”…. because businessmen are optimists but also because they wanted the loan for a reason in the first place.

    Venture Capitalists can be found in the Wall Street Journal. The problem is that they want 51% ownership of the company. And they want the right to fire you even though you used to own and run the company by yourself.
    Angel investors are looking for good causes. Probably not your online business unless you could prove that you would be hiring hundreds of local people.

    Question: Where can I find investors or venture capital firms to invest in my social networking website?

    Answer: If you’ve got the goods, research the vc firms to find those that invest in your product/business area. Then, network to get a referral if possible. It is much better to get a referral than mailing your plan in. VCs get hundreds of business plans & pitches and it is very hard to standout if you mail it in. Make sure you are really prepared with a well-thought presentation and be prepared to answer questions about your market and competition.

    Question: If you ask a venture capitalist to finance your business, do you still have to pay back the money they loaned you? I’m assuming yes but just want to make sure.

    Answer: VCs don’t generally lend, they buy partial ownership (also called equity or stock). However, it is not that simple. They get Preferred shares that have a liquidation preference. So, when the company is liquidated (sold or goes public), their investment gets paid back “off the top” in addition to getting their prorata share of the proceeds. In some situations after they are an investor, they will lend money to the company in what is called a “bridge loan”. These loans always include stock warrants. But, they only do this for existing investments.

    Question: Why do the share prices of VCT’s seem to fluctuate less than other shares?
    Many of the Venture Capital Trusts have share prices which don’t seem to move at all some days. I want to know why that is. Why don’t VCT share prices move around like other shares?

    Answer: Most “VCT”s are typically very, very low volume, their prices tend not to be as volatile as stocks in the short-term. People buy them to hold, not to trade.

    Question: Are there any restrictions on foreign investments in the U.S.?
    I am a start-up corporation seeking venture capital funds. I have had inquiries from foreign investors. Can I accept their money?

    Answer: Yes you can accept their money. And the IRS has nothing to do with it, they are tax collectors not foreign investment blockers. You will need to consult with a lawyer regarding the legalities though and the lawyer will recommend any changes in your corp structure that might be more beneficial or necessary in this case. You might end up forming a holding company incorporated in a state like Nevada which handles the incoming funds from your investors and then issues bonds to your current company. It will be a little complicated so buy some time with an accountant and an attorney who has a history in this niche.

  • Alternatives to Home Equity Debt Consolidation Loans

    Date: 2009.11.26 | Category: Home Equity Financing | Response: 0

    Anytime you borrow money you are making a bet that you can pay back what you owe in a timely manner. And the bank is betting that you cannot and will charge you a high enough interest rate to make the risk they are taking profitable. When you decide to use a home equity loan for your debt consolidation method, you are making a bet that could cost you your home if you are wrong. Learn a better way to consolidate without risking your family’s home.

    Through no fault of your own you may be in over your head in debt. You should not compound the problem by taking out a new loan especially a loan against your house. In the event you default on a home equity loan you could lose your home. There are better and less expensive ways to consolidate your debts.

    There are a handful of reputable debt consolidation companies that can help you. They can help you lower your monthly payments, get a better interest rate on your debts, eliminate late fees and over the limit fees, and reduce the number of debt collection calls you receive.

    This way you can have more money in your pocket to give you some much needed breathing room with your finances. And you can do it all without taking out a new loan. This is a much better and safer option then using a home equity debt consolidation loan.

    Another option is to negotiate with your creditors yourself. There is nothing to stop you from calling up your creditors and asking for a better rate or to waive some fees on your account. Unfortunately the amount of favorable offers has decreased as credit card companies have been scurrying around to keep their credit card businesses profitable by raising rates and cutting credit lines and not being so generous. So this may force you to use a debt consolidation company to get anywhere with your creditors.

    Whichever route you choose there are better alternatives than gambling your home with a home equity loan to consolidate your debts.

    Talk to one of the leaders in debt consolidation for free. Get a free debt analysis of your specific situation and find a custom solution to help you get out of debt. Find out how soon you can become debt free regardless of your credit history.

    Debt Consolidation FAQ:

    Question: Will my Debit Consolidation affect me?
    Four months ago I put all my credit cards to debt consolidation and I was wondering by having to do that will that effect my credit from buying a new car or renting out an apartment?

    Answer: Yep. Have you checked your credit lately? Has the consolidation company been paying your bills on time? Did they ruin your credit in the process of negotiating with the creditors?

    Question: Can you apply for credit while on money management?
    I am on money management(which is a debt consolidation program). I’m wondering, could I still apple for a new credit card and not get kicked off the program.

    Answer: You can apply all you want but you wont get approved. It will say on your credit file that you are in such a program. Also usually one of the stipulations of being in such a program is that you don’t seek new credit. Debt is what got you a position where you needed a money management program. Why would you want to take on more?

    Question: I have a few small loans, I want to consolidate them in one?
    I believe the term is debt consolidation. Is it a good option? And where can I get some sort of a good reliable information about it?

    Answer: Your local bank would have the best information about it. You would take out a personal signature loan to pay off all of your small loans. Depending on how good your credit is you may need a cosigner and/or they may limit the amount they are willing to loan you.

    Question: Best Credit Card Consolidation Company?
    I am in $10,000 worth of credit debt I need out. What is legit credit card consolidation company to go with to be out of debt in 24 to 36 months? I know there are several out there trying find the best one to go with!

    Answer: You don’t want to consolidate your credit, you want a credit counseling service. Consolidating your credit means you take out a new big loan to pay off all your old little loans (credit card debt). Consolidating your credit is usually a waste of money. A credit counseling service helps people come up with a debt management plan to pay off their creditors. There are a ton of credit counseling SCAMS so watch out.

    Question: Credit card company won’t work with me.?
    My credit card company won’t work with me to get on a payment plan within my budget but instead advised me to work with a debt consolidation company. Why would they work with a company rather than working with me directly?

    Answer: Because they are probably charging you 29% interest and want to stretch it out as long as they can. Also, they want a debt consolidation company to bully your other creditors into accepting smaller payments so they can get more from you than you are now offering.

    Most debt consolidation companies are ripoffs and will do you harm. I would instead try to transfer your high interest balance to a lower rate card, and get it paid off faster that way. I like an offer from Pentagon Federal Credit Union, which offers 4.99% for up to 2 years.

    Otherwise, take a long hard look at your budget and find out what things you can eliminate in order to put more toward your debts. If you google the term “frugal living” you will find hundreds of suggestions.

    Question: Debt consolidation based on credit reports?
    Can some one help me consolidate my debt based on credit report? I have lost my statements.

    Answer: You will need to get replacement statements. The amounts on your credit report may or may not be current totals. Contact your creditors and ask for a current statement of account.

    Question: Should I file bankruptcy or do a debt consolidation?
    I did 2 years of active duty in the military and when I got out in 2008 I went back home (Los Angeles). I got out with a 15,850 dollar “Car Loan”. I’ve been unemployed since then, now I have a 35,000 dollar debt. I am still in the reserves but I can’t find a civilian job. I just received my phlebotomy technician certificate and I’m looking for work on the medical field. The 35,000 dollar debt does not let me live in peace, I can’t think right. I’m only 21 years old, I wanna go to college. I don’t know what to do, I’m about to be homeless. I need help.

    Answer: Go with a debt consolidation agency. Going forward by declaring personal bankruptcy even after your gainfully employed the bankruptcy will show up on your credit search and you will need to explain it over and over and can very well be rejected. A debt consolidation agency will demonstrate that your have taken steps to correct past behaviors.

    Question: What are the drawbacks of the debt consolidation loan?

    Answer: All loans have some demerits. Not only this debt consolidation loan. Some drawbacks of debt consolidation loan are it is quite easy to fall into another debt if you are not able to manage your credit cards properly. You may end up paying more on your debts if you repay over a period of 10-30 years and you can lose your property if you are not able to repay your secured debt consolidation loan on time.

  • How Getting Prequalified For Home Loan Finance Can Speed Up the Home Buying Process

    Date: 2009.11.26 | Category: Home Equity Financing | Response: 0

    Many home buyers go about the process of buying a home the wrong way. That is; they spend weeks, months and sometimes even years, searching real estate listings, driving neighborhoods and visiting open houses looking for the perfect home to buy. Surely, that is the logical thing to do? Isn’t it? After all, the buyer gets to know what houses are available and which properties are for sale at a fair market price. Yes, that it right to an extent. Unfortunately, that is not usually the best way to go about buying a property.

    Once the buyer has found the home of their dreams, they place an offer to purchase the property subject to obtaining a suitable home loan. That is where things can come horribly unstuck.

    It is often only at this point, the home seeker begins to shop for a home loan. All too frequently; the bank, or lending institution, declines the home loan application. For one reason, or another, the property falls outside the lending criteria and is deemed to cost more than the buyer can afford.

    In these circumstances the buyer loses the chance to buy the dream home they searched so hard to find. The deal falls through simply because the buyer could not obtain a loan and finance the purchase. The buyer is frustrated, the seller is frustrated and so is the inexperienced real estate agent who chauffeured the buyer around for all those months without asking the one important question – “have you been preapproved for a home loan, or are you paying cash?”

    If you require finance to purchase a property – always get preapproved for home loan finance, BEFORE searching for the home.

    The savvy home buyer is the one who shops around for the loan finance first. That way, he or she knows exactly how much he or she can (or can not) afford. The home buyer can then confidently seek out only properties that are within his or her prequalified loan price range.

    The only sure way of knowing how much you can borrow is to go through the home loan prequalification process. Home loan prequalification is not difficult, and if you are not a cash buyer, it is an essential part of the whole home buying process.

    Home loan prequalification sets the wheels in motion and is the first step in formally applying for a loan. It lets the home buyer know what is and is not possible.

    The other big advantage in prequalifying for a loan is that it puts the buyer in a much stronger negotiating position with the vendor. The fewer conditions of sale that are included in the contract the better.

    Noel has a new real estate website with lots of helpful Real Estate Resources. His website has information on real estate buying and selling and Mortgage Terms.


    Home Loans FAQ:

    Question: Are there VA loans for individuals in the military that do not own a home?
    My husband and I are looking to consolidate debt. We have heard of VA loans and would prefer a military based loan in order to have a lower interest rate. We do not own a home.

    Answer: No. The VA will only guarantee a Home loan. Personal loans are through your bank. By the way, being military or going through USAA or Navy Fed does NOT mean you get a deal on interest. ONLY your credit score determines what your interest rate is.

    Question: How to obtain a home loan for more than the home costs?
    Is it possible in our current market? If so, can it be in one loan? Say the home is purchased for $120k, can the buyer ask for another $20k for personal debt? Does this have to be done with a home equity loan?

    Answer: No, there are no loans for more then 96.5% of the sales price, that is as high as it is possible to go.

    Question: How important is employment history when getting a home loan?
    For myself, I just graduated college and in the process of looking for a job. Once I find one I plan on trying to get a home loan. I have no employment history because I was going to college. So will they take that into consideration?

    For my fiance, he worked in the hotel industry for 4 years but recently went into the health industry because they paid more. He has been working there for 4 months. Will that be a problem for us because he is in a new line of employment?

    Answer: You generally need at least 3 years track record on the job. You’ll also need 20% down, all closing costs, and 3 – 6 months of reserves, credit scores of 700 or better, 3 years tax returns, etc.

    FHA supposedly only requires a minimum of 3.5% down, but we aren’t seeing anything actually get funded by closing date without at least 20% down. There seems to be an inordinate incidence of “last-minute hitches” with anything less than 20% down. But then FHA is broke.

    Start saving. And don’t even think about buying property with an unrelated party. If you & fiance actually marry, and have the down payment, etc, saved up, then go ahead.

    Question: How often does a home loan pre qualify approval get denied at closing time?
    I got pre qualified for a home loan, my credit and debt to income ratios are good according to my realtor, how often do you see a pre qual that gets denied, I’m just worried because I know how today’s economy is, even though it’s getting better… I am applying for an FHA loan

    Answer: This pre approval needs to be from a Lender not a realtor. Now you feel you have a good credit rating then you should be fine. I am going to be honest 25% of loans that go through underwriting gets denied for the loan you are applying for but that will not mean you will be homeless they will put you in a different program. In underwriting they most likely will want some more documentation such as paycheck stubs, bank accounts, W-2s it is critical that you get these in right away when they ask for these, delay will cause your loan to be lost in the shuffle.

    Question: Can we get a new home loan while owning 3 rental properties?
    We are looking into moving into a larger home. Currently, we own two rental properties and would be looking to rent our current residence out. Will we be able to qualify for a new home loan in this circumstance? What are some things we should do to position ourselves to qualify? Our credit scores are both over 775. The houses would all take a 20k+ losses each trying to sell them in thise short sale/foreclosure saturated market.

    Answer: It’s really difficult to say without knowing all of the right information but I can tell you this much.
    Under buy and bail guide lines here is a list of things you’ll need to consider.
    1) Lenders will use 75% (not 65%) of the gross rental only if you can show that income on tax returns or if you have 20-25% equity in the home. In order to prove the equity, you will have to provide an appraisal.
    2) You will need up to 6 months reserves for each mortgage payment so if you have 3 mortgages at $2,000 each you will need to show up to $36,000 in liquid assets.

    Question: How does a Military Home Loan work? Is it a for sure thing?
    My husband is in the Army National Guard and is currently deployed to Iraq. We are expecting our first child, and when he comes home we want to buy our first house! He has mentioned a VA home loan, since he will be a veteran once he is back home! How does his work? Is it guaranteed? How does one apply for it?

    Answer: The VA home loan guarantee is not a direct loan, it is a guarantee to the lending institution that the home loan will be covered if the veteran defaults on the loan. You can get a VA home loan from most any financial institute that provides home loans, provided you meet credit and income requirements. If the veteran defaults he’s on the hook with the VA for the amount. For more information about VA home loan go to the VA website.

    Question: Can I apply for a home loan if I have already taken some personal loans. What are the conditions?

    Answer: Yes you can apply. Only problem is that your home loan eligibility will get reduced accordingly. If you can close personal loan your home loan quantum will increase. Since home loan rate of interest is less it is better to close the personal loan.

    Question: Can I get a home Loan with a 640 credit score?

    Answer: That depends on other variables, such as your debt to income ratio and collateral. Your best bet is to stop by your bank and simply ask them if it’s worth applying for. Not all banks work the same, so some may not offer you a loan while others might.

  • Understanding the Different Kinds of Home Loans

    Date: 2009.11.24 | Category: Home Equity Financing | Response: 0

    One of the biggest financial decisions for most people is choosing the terms of their home loan. The ramifications of these decisions are huge and will effect your life for years to come. There are many options to understand and choose from. Research is important, as is being self aware enough to know what level of risk you can handle.

    A fixed rate home loan may appeal to you. A fixed rate means that for a certain period of time your payments on the loan will be the same because the interest rate will not vary. This makes managing your month to month finances a little easier. A fixed rate homeowner loan allows you to fix the loan period for between one and five years and no matter what happens your monthly payments stay the same. There are a few things to take into consideration. No one can predict with certainty what the market is going to do. It is possible that interest rates will go up and your fixed rate home loan will save you a lot of money. It is also entirely possible that interest rates will go down and your fixed rate will cost you money.

    Another option is the variable rate home loan. With a variable rate the interest on your home loan follows the nationwide interest rate. If the rate goes down so do your monthly payments, if it goes up your monthly payments go up as well. Again, it is impossible to precisely forecast the national economic climate. If you have some room in your monthly budget it may be worth taking the risk on this type of loan.

    Variable home loans come in two different types. A basic version that is pretty much a no frills bottom line, mortgage. These types of loans are usually taken out by first time home buyers who want to get into their first house as soon as possible. They often run at up to half a percent below the national interest rate.

    The second type is called a standard variable rate. This is the most common form of home loan and it includes features that are useful such as a redraw facility and phone banking. This type allows you to make extra payments without penalty. When applying for a homeowner loan, be sure to pay close attention to the details laid out in the application and other documents as fees and penalties will usually be different depending on the lender you are working with.

    Find out more about homeowner loans and why you should consider one over a standard personal loan at loans for beginners.

    Home Loans FAQ:

    Question: Can someone tell me the advantages and disadvantages of using VA home loans?

    Answer: There are no disadvantages for the vet. They do require seller contribution though.

    They are lower interest and easier to obtain then conventional loans, a way for the country to reward those who have served their community.

    Question: How likely is to get a home loan from a bank when having over $60,000 out in school loans?
    I graduated from college last year and am wanting to buy/build a house. I am curious about how likely it is to get approved for home loans when I have around $60,000 in debt from school. Is this even an option for me right now?

    Answer: It all depends on your Debt to Income ratio. Basically, if you are making $4,000 a month before taxes, a bank will try to make sure that your total payments (student loans, car, and house payments) does not exceed 35% of your pre-tax income. So if your total payments of long term debt would exceed about $1,400, chances are that you will get turned down. Also, a lot of banks are requiring 75% loan to value on properties. So unless you have 25% to put on a down payment, or can obtain a virtually unsecured loan for the downpayment,you might be out of luck at the moment.

    This is all assuming you have a good credit score of 700+.

    Question: I am 60 points below the ideal credit score for a home loan. is there lenders who give loans to poor credit?
    I would really like to buy a home, and receive the first time home buyers tax credit. Only my credit score is 589, and my bank gives out loans to 620 and above.

    Answer: More than likely, you’re not going to find a lender in this economy unless you have at least 20% to put down. A year or two ago, you would have been okay but not now. More than likely another bank will loan out to that credit score but again only with a lot of cash down. More than likely, you’ll end up with an FHA loan if you get approved.

    Question: Will student loans stop me from getting a home loan?
    I am about to gain a $13000 debt in student loans. In about 6 months we are applying for a home loan. Will that student loan be applied to my debt to owe ratio? Will it be a factor when applying for a home loan?

    Answer: When applying for a home loan your credit report will be reviewed and you may be required to provide a number of other details, including: Employment and income records, Tax Returns for the last few years List of assets, List of liabilities and what you owe, Your budget showing monthly living expenses so that you can demonstrate an ability to pay.

    With this information you and your lender will be able to determine the kind of home loan and size of the right mortgage for you. In some cases, you can obtain a pre-approval or pre-qualified certificate, which shows how much you can borrow so that you can then shop for homes in an appropriate price range.

    Question: If I have personal loans and roll it into a new home loan will it increase borrowing power?
    I have a car loan and a personal loan totaling about 23k. If I put this into the home loan do they still count it a debt or not?

    Answer: If you refinance and use the equity to pay off these loans, it’s still debt.

    If you hope to buy a house and include the debt, it won’t work as you can’t borrow more than about 95% of what the house is worth.

    Question: Is there a home loan for a person with $60k in student loans and no down payment?
    I am a single parent who just finished college. I have $60k in student loans and no savings to speak of. I have an amazing offer to purchase a home for what the current owner owes on it, but I don’t know where to even start looking for a bank/agency who will give me a loan with my background.

    Answer: You don’t want to buy a house with no down payment. I made that mistake two years ago, and barely avoided foreclosure. Just wait until you’ve paid down your student loans and you have at least 20 – 30% for your down payment. Besides given the current financial market, you’ll be hard pressed to find a lender willing to give you a loan without a significant down payment.

    When buying a house make sure the mortgage payment, insurance, taxes, and HOA is no more than rent for a comparable place. that way in case you want to move you can “ladder” the property. meaning you can rent it out and move elsewhere. The rent will cover the monthly expenses and you’ll benefit from any appreciation.

    Question: For VA home loans do the sellers have to pay some closings costs?
    If so what are they? If you had a guess the percentage what would you guess it would be of the total sales price?

    Answer: The sellers do not have to pay your closing costs, however they are permitted to contribute up to 6% if they wish. Just like with any loan however, the seller will have their own closing cost to pay (non-allowables that the veteran cannot pay). These include things like processing fees, loan origination, admin, doc fees, commission, termite inspection, etc. The seller however is not required to pay fees that will exceed 1% of the purchase price.

    Question: I want to take a home renovation loan from HDFC. Is HDFC giving such loans now?

    Answer: Yes HDFC is giving such type of loans. You can contact their customer care for more details.

  • Home Equity Loans and Line of Credit

    Date: 2009.11.24 | Category: Home Equity Financing | Response: 0

    As a homeowner there is a fair chance that you have equity in your home. Equity is the difference to what you owe to what your home would fetch on the market if you sold it. Lenders often will consolidate your debt by using the equity in your home. This means that a new mortgage is written to include the debt you are consolidating into your home loan, which is usually attractive as the home loan interest rate is usually much lower than the interest rates of the loans you are consolidating. Another bonus would be that the interest rate for loan borrowings of under $100,000 would be tax deductable. The loan amount will vary between lenders, but as an approximate average it would be 80% of the market value in your home.

    There are two types of home equity loans, the first one is called a home equity loan and it can be either a fixed or variable rate. Payments are usually made on a monthly basis and payment amounts can rise or fall depending on the interest rates as they rise and fall. The second time is known as a home equity line of credit. This type of loan varies from the first one as it has a predefined limit of how much credit you have available in your home to draw down on. This means that as you pay of part of your home loan, there is an approved level of credit that you can draw down on. It is an ongoing approved line of credit. With taking out a home equity loan still be careful that you can pay the monthly payment even if interest rates rise otherwise your house could be seized by the financial institution if you fall behind in your payments and cannot met the monthly payment amount.

    Tom has been writing for many years now. Not only does this author specialize in financial matters, you can also check out his latest web site on http://hjcmotorcyclehelmets.info/ which reviews and lists the best motorcycle helmets for motorcycle safety.

    Home Equity Loans FAQ:

    Question: Can I transfer an existing home equity loan, attached to my current residence to a new residence?
    I took a home equity loan out a while ago and in this market, my equity has dropped considerably. If I were to sell my home, I could pay off my 1st mortgage, but I’d still have a balance of about $30,000-$50,000 on the 2nd mortgage. Do lenders transfer 2nd mortgages to a new home?

    Answer: Not going to happen. If and when you sell your current home, ALL outstanding mortgages must be paid off. You will need to come up with cash if your current home sells for less than is currently owed. When you buy another home, then you will need to deal with whether or not you have sufficient equity to obtain another HELOC.

    Question: Can the person on the title but not on the loan take a home equity loan? And if so what would the qualification be?

    Answer: Yes..but all owners must sign the closing papers. In other words, you can not take out a home equity loan without all owners agreeing. Qualifications would depend on the lender.

    Question: Are home equity loans tax deductable?

    Answer: Unfortunately they are not tax deductible.

    Question: Can I pay off my $5,000 credit card debt with a home equity loan? Is that a good thing to do?
    I have about $5k in credit card debt which accumulated from furnishing a new house 4 years ago and having two children. I have $40k in equity in my home. I’m tired of paying $150/month when $77 of it is finance charges. Monthly finances (child care, etc.) prohibit me from paying $500 month towards credit cards.

    Answer: Have you heard of the debt snowball? It’s a method of repayment that uses the money you have to concentrate on paying down debts one at a time.
    Using you home equity is tempting, but remember, you are trading unsecured debt for secure debt with your home as collateral. The amount you owe is not that much. I don’t think it’s worth the risk.
    Consistently paying as much extra toward the balance owed as possible will make an impact. Also, if you’ve been paying on time and a loyal customer, call your creditors and ask if they will lower your interest rates.

    Question: Home is paid for how do I take equity out with only a great credit score going for me?
    In our family we have a home worth about $75.000 its paid off, I am suggesting we take $25.000 of the equity and reinvest in another property to be used as a rental only, how can I get a home equity loan with the present economy with excellent credit and low income.

    Answer: There aren’t many low amount loans out there. You may be required to borrow at least 40k. You have to have income available to pay off the loan, the supposed rent will not be taken into account.

    Question: Can I get a home equity loan on jointly owned property?
    My wife and I are separated, she is living in the house. Does she have to agree and co-sign for the loan?

    Answer: No you can not. She would have to agree and co-sign on the loan and she would be entitled to 1/2 the loan equity. If your trying to figure some way to sneek and get the equity out of your family home, forget it.

    Question: In these economic times, is there anyone who will give a home equity loan to a person with bad credit.?
    My husband was ill for many years before he died, and we went through a vicious cycle of slow credit, chapter 13, and chapter 7. His insurance paid off the house. It is my only asset, but because of my credit situation, I cannot get a loan. I am once again caught in the cycle of slow pays. I have a very decent monthly income, but I am constantly playing catch up, so I can’t get ahead.

    Answer: What you are inquiring about is a hard money lender, beware they take advantage of people you who have equity but do not have the credit to get a normal loan, they will loan the monies out at an high interest levels and small %of loan value, you will never catch up and in the end they will own the property. Please consult an expert.

    Question: What numbers do I start with when using a Home Loan Equity Mortgage Calculator?

    Answer: Doesn’t really matter which number is first. The most important numbers are your credit score, interest rate, equity, income/existing payments ratio. Other numbers you will need are current market values, balances of existing loans, length of loan, and amount of loan.

  • 3 Facts About the Home Equity Conversion Mortgage Or HECM

    Date: 2009.11.19 | Category: Home Equity Financing | Response: 0

    The home equity conversion mortgage, HECM, is a mortgage loan, with which a home owner can convert a part of the home equity into cash money. There is no monthly back payments, but the capital, interests and other costs will be paid back, when the last owner moves permanently away and the home will be sold.

    1. Who Can Qualify For The Home Equity Conversion Mortgage, HECM?

    You must be American, age 62 or over and own a home, where you live permanently. You either own the home outright or there is a low mortgage balance. You have also to meet the home equity conversion mortgage counselor, who can give a detailed information and to take account your special requirements.

    If your present mortgage is not from the Federal Housing Administration, you can still qualify for their home equity conversion mortgage. The single family home or max 4 unit home with one unit occupied by the borrower are eligible home types.

    2. What Is The Difference Between The Home Equity Conversion Mortgage, HECM, And The Usual Bank Loan.

    There are big differences. First, to be able to get HECM, you must be age 62 or over and own a home, where you live permanently. On the other hand, the lender will not ask your credit information, nor your monthly income, because the loan will be taken against the home equity. And, this is important, there is no monthly back payments. The lender pays you every month.

    With the HECM from the Federal Housing Administration you cannot be foreclosed or forced to vacate your home, because you missed the mortgage payment. Of course you have to keep the home in a good shape, to pay the taxes and insurances, because you are the owner.

    3. How Do I Get The Money And How Much?

    Principally the older you are, the higher the appraised value of your home is, the lower the interest rate, the more you can borrow. Actually you decide, how the lender pays to you. The alternatives are as a lump sum, as monthly payments, as a credit line or as a combination of these.

    As said earlier, there is a compulsory meeting with the counselor, who is officially approved. This is for your benefit. The home equity conversion mortgage includes lots of benefits and small things, like tax influences, so I honestly recommend that you will take all the benefits from this meeting.

    It is useful to prepare a question list before you go into the counselor meeting. Another thing, which you could do, is to negotiate with your relatives and spouse. The Internet offers lots of useful information and there are many reverse mortgage blogs, where seniors exchange opinions and experiences about these loans. Jump in and participate!

    Juhani Tontti, B.Sc., Marketing. The HECM Is The Only Reverse Mortgage Insured By The US Federal Government. If You Ponder, What Is A Reverse Mortgage, That Is A Good Alternative. Visit: Home Equity Conversion Mortgage

    Home Equity FAQ:

    Question: In a Home Equity Conversion Mortgage (HECM), what happens to the home after the owner passes away?

    Answer: The same thing that happens when anyone with a mortgage dies. If he has a will or heirs, they will inherit the home. Just like a traditional mortgage, the heirs would pay the loan off with whatever money they have, sell the house and pay the loan with the proceeds (additional proceeds are theirs), or if someone wants to keep the house, they may be able to refinance into their own names as long as their income and credit are adequate to do so.

    One thing to note is that a HECM or any type of reverse mortgage is a Non-Recourse Loan. That means that if the amount of money you owe is more than you can get for the house, the fair market value, you don’t owe the rest.

    Question: Is home equity loan on a rental property tax deductible?
    I own a home right now where I am still paying PMI. I also have a rental property. I would like to take a home equity loan on the rental property to pay-off some of my mortgage so I will not have to pay PMI to my first home anymore. Will the interest I pay on the home equity loan on my rental property be tax deductible?

    Answer: No. The rules are different between your residence and rental property when it comes to mortgages and other home loans.

    With rental property, there is something called the “Trace Rule”. In order for the interest to be deductible, you have to be able to “trace” the usage of the funds to the rental property itself.

    Using a home loan, secured by the rental property, to pay down your mortgage on your residence makes the interest on this loan personal and non-deductible.

    Question: I want to “borrow” my parents home equity to buy a home?
    Is it possible to have my parents “loan” me their home equity loan to purchase a property for myself? I would pay them back with a interest. My credit is great, but just don’t have the down payment. Are they under any obligation to do anything specific with that loan.

    Answer: Well, your parents would have to give you cash. You can’t transfer equity from house to house. They would have to refinance their house, take out a larger mortgage which would give them cash at the closing table and then they can give it to you. This may only work with you parents – the cash would be considered a “gift” and could be used as a down payment. And you may run into an issue if the money has to be paid back – then it wouldn’t be a “gift.”

    Question: Why is nobody willing to address negative home equity situations where the owner is NOT financially distressed?
    I still have my income. But the home has gone down so much I’m underwater. It doesn’t make sense to keep paying…and I would argue that being underwater IS financially distressed.

    Answer: Every single property owner is in the same situation.

    If the government were to bail out the entire population, and some of us lost millions, the entire country would bankrupt itself. How would you think we would pay to bring everyone up to where they were a couple of years ago? Try to think past your nose and see the big picture.

    Question: Should I take out a 2nd mortgage or home equity loan to pay off credit cards?
    I’m going to be putting my house on the market soon. Should I pay off the cards now or wait til I sell the house? I expect to make enough to pay off mortgage AND outstanding cards but would like to pay cards sooner.

    Answer: I’d wait until the house sells. After all, you could be there a while before it sells. Your house is a secured loan, the credit cards, unsecured. I wouldn’t risk it, especially with the state of the real estate market.

    Question: Does the bank give you cash when you get a home equity loan?
    If I were to get a $100,000 loan would that money be given to me in cash? Will the balance be transferred to my bank account? Do I have to go back and forth and tell them when I need money and they’ll give it to me? What happens? Also do I have to get each thing I spend the money on approved after I get the loan? Like if I make the improvements to my house but I have money left over and would like to improve some other area?

    Answer: You get either a single check or single transfer into your account for the entire amount.

    When you fill out your loan application, there should be a place for you to state your intended use of the money, and it’s up to you to stay true to that. Technically, I suppose the bank could consider the application fraudulent if you use the money for something else and call the loan, but I really doubt they would check or care, unless there was another reason for concern. Their primary security is in the equity of your house, so I’m not sure it would really hurt the application if you put down “General Expenses” as the purpose of the loan.

    Question: Is it a good idea to pay off $43k in credit card debt with a Home Equity Line of Credit?
    The interest rates on most of my cards has gone up to 26% & the payments are OUTRAGEOUSLY HIGH. The interest rate on the HELOC is Prime plus .760%.

    Answer: Bad idea to shift unsecured credit card debt to your house. If you default on the credit cards, you get bad credit. If you default on the HELOC, you lose your house.

    You should consider credit counseling to deal with those credit cards. Check for a NFCC member. These are legit, non-profit companies that offer debt management programs for a nominal fee. They negotiate lower interest and payments so you can pay off the debts. While in the program, it is noted on your credit report. But upon completion of the program, that notation is removed and you will have decent credit.

    If you don’t want to go to credit counseling, you should set up a strict budget. Take every penny you can squeeze out of that budget and put it on the highest interest rate credit card, while making minimum payments on the rest. When the highest rate card is paid off, move to the next one till they are all paid in full.

    Also, consider ways to bring in more cash. Have a garage sale, collect alum cans, get a second job. Throw it all at the credit cards.

    Question: What are some valid reasons to access the equity in your home for a loan?
    We’re trying to get a first mortgage for the equity we have in our home. My husband built our home so we’ve never had a mortgage. We want to use the money for some financial security but this is not the answer the bank wants. What do they want?

    Answer: You have it backwards, going into debt and paying interest will not give you any security at all. You are in a secure position now, don’t mess it up.

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