Have you ever noticed how hard it can be to get to the equity in your home?
Recently I had a client come to my office who had quite a bit of equity in their home. I’m not talking about $50,000 or even $200k, I’m talking about over $250k. I was asked to get 80% out of their home so that they could re-invest the monies elsewhere.
From an application stand point this person had no reason not to qualify. They had great credit scores, tons of assets and the loan-to-value on the home was nothing to be concerned about. The only problem we came across was that they were business owners and had taken a loss on their taxes the year before therefore we could not show any income documentation.
Lenders have ways of protecting their interest through limiting cash out and verifying their investments. Although my client had everything with exception to the income documentation we were limited to getting $250k out of their home. Locked into a good rate, we moved forward and closed the deal that limited us with getting the cash out.
We then went looking for a lender that would be more willing to give us the cash out but knew it would be at a higher rate due to the potential for risk. The rate for the rest of the money turned out to be about 1% higher.
This got me thinking about utilizing my home as an investment:
1. How much does the bank pay you when you pay down your loan, yet they maintain their right to take your property until you have paid your entire debt?
2. What happens when you find yourself in a difficult situation and need to pay less than the monthly payment?
3. What happens when you need to get to the money you have diligently worked so hard to pay down? You have to qualify, yet you own the asset.
My recommendation is to maintain a way to get to your investment. I am not so much recommending that you take out the money as you at least set up a Line of Credit so that you can get to the money should you need it.
Angela Talent, Your Mortgage Advisor! is a loan agent for Allied Capital Loans in Folsom. You are free to distribute this article as long as you include this resource box and make all links active.