Mortgage or Home Equity Loan?

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My maternal granparents just moved out of a house that belongs to my dad. He is now going to give us the house. We have about $ 60,000 we want to spend on paying off some bills and remodeling the house. What is the best way to go about this a Mortgage when we get the house or a Home equity Loan?
The $ 60,000 is not set aside in savings this is what we would need to borrow. The bills are for high intrest credit cards and then most of it would be for renavations.
This is not our first home, we are currently in a home with a morgage with USAA so we know all the ins and outs of a morgage.

16 Comments
  1. Reply
    Gem
    January 21, 2011 at 6:07 am

    Home equity loans are usually higher interest payments, but easier to qualify for.

    I would try to mortgage it first. If you are a first time homebuyer and the house/loan qualifies you may be eligible for a FHA protected loan, which makes you a better option to the bank.

    Congrats on the gift and good luck.

  2. Reply
    Paul M
    January 21, 2011 at 6:49 am

    Both are loans secured against the property. A mortgage is for a fixed sum over a fixed term with regular repayments; a home equity loan is a line of credit, so you can borrow the specific amount you need as you need it (within the limits of the HEL) and are charged interest only on the money you have actually borrowed. Repayments, too, are more flexible (just as you can pay off some or all of a credit card balance each month). This can all make a HEL more convenient than a regular mortgage, especially if you are going to have episodic contractors bills to pay, but you will pay a premium for this flexibility. A lot will depend on your tax situation and the period over which you wish to pay off the borrowing. This is a case where there is no generic answer; you need to make a side by side comparison of the costs given your particular circumstances. You may need to consult a professional adviser.

  3. Reply
    QT777
    January 21, 2011 at 7:16 am

    A couple of questions first: How much equity is in the home? Will you be spending more than the $ 60k you have in savings on the remodel? Both Heloc and Mortgage rates depend on how much their loan to value is. In other words how much money you are in debt versus the market value of the home. If there is a lot of equity you can just increase the loan amount and take out some cash. Beware that lenders have really tightened up on this practice and you will need better scores. I prefer this option because you don’t have to really think about repaying the amount because it’s already included in your mortgage payment. Also you can get a fixed mortgage where your rate won’t go up.

    On a Heloc, it works more like a credit card, you charge and pay as you go. Be careful because some of these have introductory rates which later increase. Most Helocs are variable. Generally closing costs on Helocs are considerable less than on a mortgage. If you take out a mortgage you can always get a piggy back loan meaning you get a Heloc as well through the same lender. This is the best of both worlds if you have the equity for it.

    You can only go FHA if you qualify and your mortgage is under their limit. You mentioned you will be doing some remodeling. FHA is very picky about the condition of the property and you will need to pass an FHA appraisal/inspection.

    Just ask yourself if you were to put it on a credit card would you pay it off soon? Most people that I’ve seen get a Heloc with a large balances usually don’t pay it off. Since Heloc generally have higher rates than mortgages for this reason alone you might be better off with a mortgage. If you are the type of person that will pay it off soon, then do the Heloc.

  4. Reply
    goz1111
    January 21, 2011 at 8:13 am

    if you are asking about a second note on the property , depending on the equity it may be hard, a current article in the financial paper outlines how it is becoming harder and harder to get a second note in this credit crunch

  5. Reply
    I_Love_McRedneck
    January 21, 2011 at 8:42 am

    Equity lines have higer interest but are easier to get.
    Just a comment though – do you REALLY want to take your short term bills and add them to a 30 year payment schedule? If you’re talking about high interest credit cards and were only making the minimum monthly payment, chances are you’d be paying on them in 30 years anyway BUT if you’re talking about vehicles or other short term payments, DON’T DO IT!

  6. Reply
    Value m
    January 21, 2011 at 8:42 am

    If you are a first time borrower of a home equity loan it is imperative that you have a checklist of essential questions that you need to ask each and every lender. The answers to these questions will provide a valuable reference to base your comparisons on. What’s the interest rate? Knowing this is crucial. The interest rate will determinepercentage by which the adjustable rate will change. What is the Annual Percentage Rate or APR? The APR on the home equity loan will determine the yearly payment you will need to make towards this.The higher the payment in terms of points, the lower is the interest rate.

  7. Reply
    sideline2084
    January 21, 2011 at 8:50 am

    Check out http://www.mortgagefigure.com lots of information about mortgages, refiniancing, consolidation, bad credit mortgages and more.

  8. Reply
    lary h
    January 21, 2011 at 9:06 am

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  9. Reply
    khottmann
    January 21, 2011 at 9:17 am

    I would go with a home equity loan

  10. Reply
    Nelson_DeVon
    January 21, 2011 at 9:17 am

    That is pretty good.

  11. Reply
    lisabmanley
    January 21, 2011 at 9:53 am

    This depends on your term and credit quality. However, this isn’t a bad rate. If you have excellent credit, you may be able to get a slightly better rate.

  12. Reply
    Brad12345
    January 21, 2011 at 10:44 am

    I’m not sure. I just got an offer in the mail for 8.something. Deffinetly shop around and do what you can to boost you’r credit score, it does matter, good luck!

  13. Reply
    thirsty mind
    January 21, 2011 at 11:04 am

    NO!!!!! Really shop for your rate. every mortgage broker you can find any where. We got 5.75!!!

  14. Reply
    Liger
    January 21, 2011 at 12:03 pm

    That’s pretty good. The person who got 5.75% is probably talking about their mortgage, not a HELOC.

  15. Reply
    HomesByDamon.com
    January 21, 2011 at 12:43 pm

    You need to clarify your question!

    Are you saying you were offered a Home Equity Loan at 7% or you were offered a mortgage at 7%.

    If you were offered home equity loan at 7% that’s very good! If you were offered a mortgage at 7%, that’s high. The going rates on mortgages right now are 5.75 – 5.875%.

    FYI – If your credit is bad, the loan-to-value exceeds 95%, the loan is for an investment property, and/or you cannot prove income, then forget the 5.875%, as 7% might be the best you’ll get!

  16. Reply
    Kevin A
    January 21, 2011 at 1:00 pm

    Check out: http://homerefinance1.blogspot.com They have good information on refinancing a mortgage and more.

    http://homerefinance1.blogspot.com
    http://loanconsolidation1.blogspot.com

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