A question about home equity?

Question

My fiance's grandmother passed away a few months ago and her house was left to my fiance & his brother. We are going to move into this house and try to get a home equity loan to pay his brother his half of the inheritance (instead of him getting money from selling the house). However, my fiance had just started his own business and does not have a valid proof of income just yet. What are the chances that he will be approved for a home equity loan (50% of the home's worth)? I should also mention that his credit is pretty much in the toilet.

He will have a valid proof of income in the next few months....a very nice income at that. We do not want to sell the house simply to keep it in the family. The house itself is worth $80K (assessed in 2006) and his brother will be expecting around $40K.

Answer 1

You can easily pull out up to 65% of the home's worth no matter what your credit and income situations are. Rates will be higher but on 40000 the payments will not be very high. I suggest doing a short term private loan until you can verify income for 2 years. By then you could improve your credit rating and settle into a long term loan and have access to your equity at lower rates.

Answer 2

While it's true that you have a couple of strikes against you (no verifiable income and poor credit) there may still be some financing options available to you since you have a favorable Loan to Value ratio. I suggest that you go to a reputable loan broker who may have knowlege of lending institutions in your area who lend money to individuals with less than perfect credit. You will most likely get an interest rate that is well above the a standard mortgage rates but purchasing an $80k property for $40K is sound thinking before your fiance sells the property, gets the money in hand and blows it on something else.

Answer 3

Because of the intense down turn the housing market has taken, getting a sub-prime loan - the only one he would be qualified for - is virtually impossible.

I recommend working out an agreement with the brother. Write up an agreement to pay him monthly for two years a minimum of 8% interest on the money he would have received to offset the money he is losing out not being able to invest the money (That's at least $81 per month. Any additional money you pay should be deducted from the principle value: $40,000). At the end of two years, your boyfriend should have done all he could to build his credit and display evidence of income. If so, he should be able to attain a mortgage to buy your brother out. If not, include in the deal an agreement to sell the house if your boyfriend cannot fulfill his part of the bargain.

Answer 4

A lot of the "sub-prime" mortgage lenders are going bankrupt or trying to sell. This will make it more difficult for you to get a loan, and the rsate may be higher. Also, there are a lot of defaults form creative financing that took place the last few years, so the mortgage underwriters are becoming more selective and conservative. But, because the loan would only be for 50%, you should be able to finance it. Make sure and go to a reputable loan company - there are a lot of legal loan sharks out there that will charge you much more than you need to pay. If the major, well-established institution cannot give you the loan, they will refer you to a reputable sub-prime lender.

The loaning company cannot lose! They can foreclose on the house if you fail to pay them, and they will make a killing on the sale - getting all of their money back, including fees. With collateral like that you should be able to get a decent loan.

Is your brother willing to wait - to where you could pay him a monthly payment (of perhaps interest only), and agree to buy his half for the current market value (so you get the equity if it goes up)?

Answer 5

I suggest trying to handle this internally if it's possible. Getting an equity line from the house is not really a good strategy anyways, because if you were to ever default on the equity line, you could lose the house.

My suggestion would be to make a deal with the brother that you would basically pay him off on a monthly basis, say $1K per month, however, rather than pay for 40 months, you would make payments for 48 months (which is roughly 5% annual interest), so he would wind up with an additional $8K that way, and you would avoid needing the home equity line, and if things ever got bad and you couldn't afford to make payments to him, you could sell the house at that point and pay him whatever balance is left, with his share being $48K rather than $40K.

Answer 6

If they sold the home and split the proceeds what would that figure be? Deducting the closing costs and Realtor fees etc.
Would the brother like to receive monthly payments at 6% interest for his half? Then there is no qualifying or loan fees. He would still hold his interest in the home in the event your boyfriend defaults on his payments (which is a real possibility with his credit history and employment situation). The effect would still be the same - only the brother would get the house in stead of the bank.

Answer 7

The greatest advantage of going for a Home Equity Loan is not only to eliminate debt, but also lower the taxes you have to pay to the government annually. Generally most of the loans do not offer any tax relief, but a Home Equity Loan gives a direct line item to lower your debt. Use the services of a professional appraiser who will give you an approximate value of your home to a lender. After you know this number, you can quickly determine the value of your equity in your home. E.g. if the worth of your home is $100,000 and the mortgage is $80,000, your equity in the home is $20,000. This equity will not be taxed even in case you choose to purchase a bigger home that is more expensive. But if you opt to shift to a home with lower price, you can be punished for the difference, if you have not utilized the one-time exemption offered by the government.

Answer 8

I hate to say this but you have more than a few negatives going here. No proof of income and a poor credit rating?

The bank may be willing to do this because of the amount of equity he will have in the house but probably will give him a very high interest rate.

Answer 9

Let his brother know about the plan and see if he can wait for his $$$$$$$. Then apply for the loan when the proof of income is available.

Answer 10

As I understand, a line of credit is something which you will take out periodically. in case you mandatory $500 for something, you would be able to desire to visit the financial business enterprise and take it out, and you will possibly initiate paying pastime of the quantity which you took out. A HE own loan is a lump-sum. (i'm hoping I comprehend it properly and am providing you with terrific suited information)