A home equity mortgage, also referred to as a home equity loan, is primarily based on the amount of equity that is present in your residential property.
Equity is calculated by subtracting any debts owing against the property less the fair market value of the property or purchase price, whichever is less.
As an example, if a home had a market value of $500,000 and a first residential home mortgage outstanding of $200,000, then the equity in the home would be the difference, or $300,000.
Home equity mortgage financing occurs when there is no third party proof of earnings that can be used to support debt servicing. Typically, when someone applies for a mortgage, the lender will assess the value of the property for security, the strength of the applicant’s credit profile, and the annual income generated by the applicant (or applicants) that will be used to repay the mortgage over time.
In situations where the homeowner or buyer is self employed, the reported earnings may not adequately cover the lender’s repayment requirements due to tax deduction strategies afforded to the self employed.
For these individuals and others that can’t show sufficient income, but have adequate credit and equity of at least 25% in the property, a home equity mortgage is the typical solution.
A home equity loan can also come in the form of a second mortgage whereby there is sufficient equity in the property to allow for additional mortgage financing to be secured and registered after the first mortgage that is already in place. Once again, as long as the overall equity position after borrowing is greater than or equal to 25% of the value of the property and credit is adequate for the equity mortgage program being considered, a home equity mortgage is a likely source of financing.
Home equity loans can be used to secure property as well as other purposes like debt consolidation or home improvements.
There are several different programs on the market that relate directly to equity specific mortgage applications, each customized to a certain set of lending criteria. For instance, some programs will be more focused on weaker credit while others will provide more repayment and renewal options for strong credit profiles.
If you’re situation is similar to what has been described above, I recommend that you give me a call so that I can quickly assess your situation and provide you with the most relevant options that we can review together in order to determine the best course of action for you and your family.
Click Here To Speak Directly With Mortgage Broker and Home Equity Specialist Joe Walsh