If you need ready cash, you can leverage the value of your home via a home equity loan. Also known as a second mortgage, a 100-percent equity loan is the largest such loan you can obtain. These loans are relatively low interest because you are using your home as collateral.
The equity in your home is the difference between the current market value of your home and what you owe on your mortgage. Remember, the current market value may be significantly more or less than you originally paid for your house. For example, if your home were currently worth $200,000 and you still owed $80,000 on your mortgage, you would have $120,000 in equity. A 100-percent equity loan would give you $120,000 minus lending fees.
The precise lending process varies from bank to bank, but most require a current appraisal because they need to know your home’s current value to determine how much equity you have. The bank may accept an appraisal completed within the past year, but otherwise you need to get a new one. An appraisal costs around $300 to $400 and may be ordered by the bank and included as part of the closing fees on the loan.
Right to Rescind
According the Federal Trade Commission, you have the right to rescind until midnight on the third business day after you sign the home equity loan in the United States, no questions asked. This right is extended to three years if the bank failed to disclose the interest rate, payment schedule or consequences for a late payment. Double-check the paperwork and if the interest rate, monthly payments or any other aspect of the loan are different then you were told exercise this right. To rescind, you must tell the bank in writing, either by letter or email, postmarked by midnight on the third day.
Banks consider a 100-percent equity loan to be risky and, consequently, most won’t offer loans for more than 80 percent of your equity. You may have to contact a lot of banks before finding one that offers this version of an equity loan. It is also important to remember that a home equity loan uses your house as collateral. This means if you fail to make payments, the bank can foreclose on your home.
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