Home Equity

Home Equity for Hard Times

A looming layoff, a business breakdown, a black hole of bills, at some point, the initial shock of a financial dilemma turns to more rational thoughts of how to manage your monetary misfortune.

If you happen to be a homeowner, tapping into your home equity is on the list as an option, but that includes the pain of having to get a loan and making payments, so you may put it off while contemplating another solution.

Tick tock, as the game clock winds down, your home equity loan option may be in jeopardy of a penalty flag. Consider the following procrastination penalties:

If you are anticipating a potential loss of income from a job layoff or business slowdown, there is a possibility of not qualifying for a home equity loan if lenders are not able to verify a stable source of income to meet the debt ratio requirement. The best time to apply for a loan is before the loss, otherwise, you have to find a no income qualifier loan, which is limited to borrowers with substantial home equity and very good credit.

If your credit takes a hit because of recent late payments, you can expect higher rates and closing costs. Creditors report late payments that are over 30 days past due, which drops your credit scores. Since home equity loan rates are based on credit scores, applying for a loan before any late payments can save money. The only compensating factor for having bad credit is a lower loan to value, but it will still cost more.

Murphy's Law says it's easier to get a loan when you don't need it, and remember the famous quote, which says a dollar of prevention is better than a thousand dollar cure. While a home equity loan or line of credit may or may not be the answer, setting up some kind of safety net can be a good idea if you think that you might be taking a fall.