Mighty Mortgages

Today we are going to discuss the combination of two great borrowing solutions known as the stated income home equity line of credit. This flexible product allows a homeowner to borrow against the equity built up in the home on a revolving credit line without have to provide documentation to support how much money he makes.

I covered previously in my article called Stated Income Home Loans, that the self-employed, small business owners and commissioned sales people often have a difficult time proving to a mortgage lender or other financial institution how what their true level of income is. They do not get W2s or pay stubs in the traditional sense and often “write-off” a large portion of their income to legitimate business expenses. This leaves them falling short of the debt service ratios that banks use when qualifying borrowers for loans and mortgages.

The stated income loan was introduced to address that problem by allowing strong borrowers to obtain credit without have to provide documentation to prove their income level. While this brought with it a bunch of new challenges for lenders, it allowed the self-employed and commissioned sales people to borrow money with greater ease.

A home equity line of credit is simply a revolving credit line that uses the equity you have built up in your home as collateral. Banks love real estate security and will gladly offer high limits and low interest rates in return for it. Once set up, a HELOC allows you borrow funds whenever you wish. As that amount is paid down, it becomes available to you to borrow again up to the limit of the line of credit. The funds can be used for anything from a down payment on a rental property to a new car to financing your children’s education.

The stated income equity line merges both of these unique needs into one great mortgage product. For those who are unable to support their income by traditional means, yet desire the low rates, high limits and flexibility of HELOC, this combined product is a perfect fit.

A good credit score is still really important. But having said that some stated income programs allow you to borrow up to 100% of the purchase price or the appraised value of the home in the case of a refinance.

Before the sub-prime mortgage meltdown, it was possible to obtain a stated income line of credit without verifying assets either. These are becoming increasingly hard to come by and it is more common to find stated income / verified assets loans and equity lines.

The days of one borrowing solution fits all are long gone. Lenders have gotten more and more creative to meet the unique needs of today’s home buyers. If you are self employed and have built up equity in your home and would like the ability to access it as you need it, instead of all at once in one lump sum, the stated income home equity line of credit was created just for you.

Owning your own home is a dream come true for many people. Finally being free from paying rent to somebody else and effectively paying down their mortgage can be a great source of satisfaction. Now that you own a home you have more borrowing options available to you when you need them. Specifically if you have paid down your mortgage balance significantly you may be eligible for an interest only home equity line of credit.

Sometimes called a HELOC, this can assist you in addressing a wide variety of financial circumstances. Whatever you needs are you can access these funds and distribute them however you wish.

You must exercise caution however, because you are pledging your home as security for the interest only home equity line of credit. If you fail to make your payments on time as agreed you could lose your house. The responsibilities and consequences are the same as for your original mortgage loan.

Some expenses just can not be avoided. Examples are medical bills or children’s’ university tuition. In these cases taking out an interest only home equity line of credit will enable you to access funds at the lowest rates possible. There is not really a downside once you acknowledge that they money is going to have to be spent one way or another regardless.

Another popular purpose for a HELOC is debt consolidation. Simply put, compared to the interest rates being charged on credit cards or other unsecured borrowing options; the interest rate on this line of credit is significantly lower.

Remember not to lose sight of the fact that your home is collateral for this and you must make your payments or risk losing it.

You need to be honest with yourself about how disciplined your are. If you just make interest payments on an interest only line of credit it will obviously never get paid off. The flexibility allows you to make lower payments around times when cash flow is tighter, like Christmas for example. But if you are not someone who will make regular principal payments then you may be best off by applying for a Home Equity Loan instead. With a Home Equity Loan your payment will always include an amount that is going towards paying down the principal.

It is thus recommendable that while you are considering the flexibility of a credit line, if you need a lump sum fund, you may consider taking out a Home Equity Loan instead. This is because in a home equity loan, you pay the interest and part of the principal debt regularly.

The bottom line is that when purchasing your home you have acquired an asset that is valuable to you in many ways. Not only for the roof that it puts over your head, but for they new lending power it has extended to you. An interest only home equity line of credit is a flexible and beneficial tool, but like all tools it must be handled with tremendous care and responsibility.