In recent years, there has been an increasing trend of homeowners looking to access their home loan in order to purchase or refinance a new house. This is especially true for more expensive homes that can prove to be tricky to finance without using some sort of collateral.
A lot of people will go into debt to buy a boat, car, or even a second house, but never seem to have enough money left over to actually pay off what they owe!
This is where a HELOC (Home Equity Line Of Credit) comes in handy. A HELOC is like a credit card for your house! You get the use of all the rooms in your house, and you do not need to put up any kind of collateral as security.
There are several different types of HELOCs, such as direct loans from lenders, banks offering personal lines of credit, and even mortgage companies offering them as a service to customers. No matter which type you choose, the important thing to remember about a HELOC is that it does not require a monthly payment unless you take out another line of credit.
That means if you decide to spend everything on travel next month, there is no cost to yourself at all! These days, most individuals find themselves needing one at least once during their life.
Advantages of a HELOC
A personal loan or home equity line of credit (HELO) is another name for using your house as collateral. This is done through your bank, so you do not need to find a seller who will take less than what they list their property at to sell it.
A HELOC can be much more affordable than buying a condo or paying cash for a house because you do not have to put down a large amount of money up front. You are only required to bring in enough income to repay the debt over an extended period of time, which makes it easier to maintain.
There are also no monthly fees associated with this type of loan like there would be if you were taking out a mortgage. It is usually paid back via recurring interest payments that are typically lower due to the risk being reduced. If you ever decide to move, you can use the value of your house to help pay off the balance.
Disadvantages of a HELOC
A home equity line of credit (HELO) can be a great way to invest in a house. Unfortunately, there are also costs associated with this approach. The main one being interest rates!
If you choose to use your HELOC for buying a house, you have to pay attention to how much money you have available to spend, as well as what kind of rate you want to get charged on it.
How to use a HELOC
A home equity line of credit (HELO) is a very common way to invest in real estate. With this option, you can borrow money from your lender by putting down a certain amount of income as collateral.
Most lenders will allow you to draw up to $5,000 per month on your loan with no monthly fees! This is great because you do not have to worry about running out of cash to make large investments. You can instead focus on investing your money effectively.
Many people use their house as additional security for their mortgage so it does not fluctuate in value much. Because your house acts as collateral, your debt limit goes up slightly- which gives you more leeway to spend!
There are many benefits to using a HELOC rather than taking out a traditional mortgage. By doing this, you start to bring back the idea of owning a property! As well as benefiting you directly, this option helps others grow too.
By donating part or all of your home’s worth to charity, you create an opportunity for other individuals or organizations to take over the responsibility of keeping up good moral values.
1) Take a loan for the down payment
A lot of home buyers do not know this, but you can actually use your own money to purchase a house! This is called using up-down financing or owner financed housing. What happens is that instead of taking out a mortgage with a lender, the buyer puts in their own money as a down payment then uses that money to pay off the seller (or what is left of the lendor).
This way, they still have access to the same amount of money to spend on the house, just from themselves rather than someone else. It also helps the investor because it removes the need to find a second mortgage provider who will lend them the rest of the money.
There are two main types of up-down loans. The first is referred to as direct sale finance. In this case, the borrower does not sell the property, nor are there any warranties given on the house. They simply put in their own money and run with it.
The second type is referred to as warranty fund lease-purchase. Here, the purchaser buys a pre-existing house that has already been inspected and guaranteed by a third party. They then take over the lease of the property and invest the remainder in their own business or plan.
In both cases, the government guarantees the interest rate so consumers are protected from high rates like those available through traditional lenders.
2) Take a loan for the closing costs
Many real estate investors will purchase a home with an accepted method of financing that does not require a down payment. This is known as “no money down” or “rental property lite” investing. A common example of this type of lending is what we discussed earlier in this article: HELOCs!
A HELOC is a high-interest (higher than normal interest rate ) credit card debt that you use to pay for a house. The lender gives you the house, and instead of paying your creditors back every month plus additional monthly payments for the house, they let you make only the monthly housing payment.
In other words, they give you a lot of slack if you are able to make those extra monthly mortgage payments because they know you will earn enough to eventually repay them.
This way, you don’t need a large lump sum up front to invest in a house, which can be very difficult at times. You can put off buying a house longer if you have access to capital right now, and once you do buy a house, you’ll have more time to save more cash for future investments.
4) Pay for the home with cash
This is not always the case, but it can be helpful to have enough money in your house that you buy it as soon as possible. By doing this, you avoid having to look for financing or find ways to pay for the down payment due to time constraints.
By choosing to use a high interest rate mortgage loan, you will need to make monthly payments that last a long time. The length of these payments gives your family the space they need to grow while also paying for the new home.
This way, your children do not have to move away because there is no room for them at their current place. For example, if two kids want to go into college next year, their parents can help by buying a house right after graduation!
These loans are more expensive than credit cards or personal savings, so make sure to budget properly for both the initial cost of the home and the ongoing costs like homeowners’ insurance, property taxes, and maintenance.
5) Pay for a deposit down payment
Another way to lower your monthly payments is by paying a down payment of cash or a credit card. This can be done through a mortgage broker or directly from an lending company such as Wells Fargo or Bank of America.
By doing this, you will reduce the amount of money needed to purchase a home due to the reduced interest rate. An additional benefit is that it helps ensure you get approved for a loan even if you do not have a large savings account.
However, make sure to only consider this option if you are able to pay off the house in its entirety within five years. If this is not possible then this strategy will not work for you.
7) Pay for closing costs
As mentioned before, paying off your mortgage is the biggest cost barrier that prevents you from investing in real estate. Closing costs are another major expense factor when buying or selling a house. These typically include title fees, surveys, credit reports, appraisals, etc.
Title searches can run upwards of $100 each so be prepared to spend money upfront! And don’t forget about moving expenses either, which can add up quickly. Moving boxes and supplies will also set you back a pretty penny.
One way to avoid this cost is by purchasing a pre-paid card. A lot of lenders offer credit cards that do not require a physical address. You can use these cards to pay off all of your previous debt (including mortgages!), and then use the leftover cash to invest.
A great place to start is with Credit Karma, an online credit reporting agency and bank account monitoring service. By registering as a user, you get a VISA gift card worth $250 that you can use towards paying down debt.