Owning a home opens many doors in the financial world. Tenants and non homeowners might sometimes have a hard time getting the kind of finance they need due to the lack of security for the lender. They will more often than not find themselves in the need of an excellent credit score and a spotless credit history in order to obtain a loan. We all know this is not realistic, not everyone has a credit score of 800 and has never missed a payment. So bad credit tenants and non homeowners will have to settle for a sky-high interest rate loan with less than favourable terms.
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Provided that you are a homeowner, you have many different alternatives when it comes to obtaining finance. No matter what type of loan you are looking at and no matter what credit range you have. The sole factor of you owning a home presents a security blanket for the lender. If you default on the loan, the lender will be able to seize your property to make up for the money loss.
As a homeowner, you have, or have been building, what is called equity on your home. This represents the true value of your property, minus the outstanding mortgage balance. For example, if your house is worth $100,000 and you still owe $50,000 worth of mortgage loan, the equity on your home will go up to $50,000. Once you finish repaying the mortgage loan, your equity will be worth $100,000.
Home Equity Loans
Home equity loans have become very popular in the last few years because they are extremely versatile and easy to get approved for. They provide the applicant with the chance to obtain a loan on excellent terms by pledging their home as a security for the loan. Of course that individuals should be fully aware of the consequences that may arise from defaulting on this loan: their homes might be lost. But leaving this aside, home equity loans are usually a great funding choice if the risks are taking into consideration and applicant can afford to repay the loaned money.
Home Equity Lines Of Credit
There is an alternative to the common home equity loan and it is called a "Home equity line of credit" or HELOC, for short. This option works like the regular equity loan in terms of security for the lender and interest rate terms, but carries one major difference: it is a revolving credit, very much like a credit card but with better terms. You will be able to take as much money as you need within the specified limit and then repay it on a monthly basis. Once you repay the amount of money you withdrew, you will be able to withdraw money again.
A line of credit is perfect for those who need finance for a varied number of expenses, but who do not exactly know how much money they will need in the long run, or will not need a large amount of money. With this alternative, you only pay interests on the money you use.
Many homeowners have benefited from this amazing financial product as the obtained money can be put to any use whatsoever.