7

I'm needing to find out if I can use my home and its feed as collateral for a 3000-5000 dollar loan to pay off my outstanding bills and just have one payment.

  • 5
    What is the question? – JTP - Apologise to Monica Oct 3 '16 at 19:23
  • 4
    If you're in the US then you can probably do it. If you're in Somalia then you probably can't. Since you've not told us where you are, no one can give you any informed advice. – Mike Scott Oct 3 '16 at 20:11
  • 3
    There are generally a number of ways to consolidate your debts of this size and have a single payment that do not involve converting your unsecured bills into something that could easily result in you losing your house if you can't make the payments. The interest rate may be higher, but you won't be signing a piece of paper that says they're allowed to take away your house. That's worth an awful lot. – Zach Lipton Oct 3 '16 at 23:29
  • 1
    "Can I offer parties of questionable honesty a chance to scam me out of my house as a way to get a piddly amount of cash fast?" – R.. Oct 5 '16 at 0:17
40

Plus one to Alexandre for pointing out this is possible. It is also possible to run with scissors, and I would recommend neither.

Your money problems are very small and doing something so dramatic to solve them will probably put you in a worse financial decision. Why would you put your home, at risk, to pay off such a small amount (less than 5K)? The "one payment" or consolidation mantra, for a person like you, will often lead a person into reoccurring the same debt and having the consolidation loan. You don't need one payment you need no payments.

First off stop borrowing. Second increase your income by working more or selling stuff. You might want to clean some houses, baby sit, or mow some lawns instead of the traditional job. Third decrease your spending. Let your loved ones know it will be a lean Christmas this year. Cut cable as you won't have time to watch TV anyway.

If you do all that could you find $1000 per month? I bet you could find more. Doing all that and you will be done in 5 months and still own your home outright.

You are a great candidate to pay off your bills by the snowball method, or smallest to largest. While it may not be, on paper, the most mathematically efficient it helps people with motivation and hope. It sounds like you could use that. List your bills smallest to largest and pay off the smallest first while paying minimums on the rest.

You can do it!

  • 7
    I agree. It's hard to imagine that it's worth the pain of a HELOC for just $5,000. – David Schwartz Oct 3 '16 at 20:53
  • 2
    Agreed it's not best practice, wanted to answer the question as directly as possible. – ApplePie Oct 3 '16 at 21:41
  • 1
    You did @AlexandreP.Levasseur which is why you got an upvote from me. I just happen to not be as well mannered. – Pete B. Oct 4 '16 at 11:48
14

Yes this is possible. The most likely tool to use in this case would be a Home Equity Line of Credit (HELOC). This is a line of credit for which the full amount is backed by home equity (difference between market and book prices). Most likely your financial institution will apply a factor to this collateral to account for various risks which will reduce the maximum amount that can be taken as a line of credit.

https://en.m.wikipedia.org/wiki/Home_equity_line_of_credit

3

Others have covered the usual vehicles for getting money out of a property.

There's another category of home loan called a hard money loan. It would take a lot of inquiries to find a hard money loan given your needs, but chances are its doable. The terms can be onerous, and hard money lenders don't mess around when it comes to foreclosing after a few missed payments. It's an off-the-radar industry and the private lenders and specialized trustees operate together with strike-force precision. Trustees normally should be trust-able by borrower and lender, but in the case I describe below, one man owned the small company that lent, and the small company that acted as trustee. Borrower beware. Yet, if your credit score and income are dismal, but your home equity is great, hard money is the only way to borrow against your home.

In making hard money loans, lenders don't consider your credit score or income, just how much equity is in the property. I daresay they hope you'll default. They don't always hang onto the loans. If you look like a payer instead of someone they can foreclose on, they might sell the loan to someone who wants a stable monthly income. You don't know a thing about that person.

A Cautionary Tale: *Check out HankandHelen.blogspot.com for a currently-unfolding saga, in which an elderly couple's grandson convinced them to let him take title to their house, borrow against it, invest the proceeds, and share the profits. It didn't work that way. He went through hard-money lenders. He borrowed $360,000 and then $65,000. Those were mysteriously paid off (total mystery at this point), and he borrowed $47,000.

About a year later, he lost the house by defaulting the $47,000 loan. He was only about $2000 behind in payments when the trustee issued a notice of default, followed by a notice of sale. The trustee put the place up for auction, which didn't require a court order: that's the way it is in California and many western states, and a few others. The hard money lender bought the loan at auction for $83,000, and a home worth about $800,000 no longer belonged to the grandson.

A fundraiser brought in about $120,000 and the couple bought a mobile home in a mobile home park. The acre of land and swimming pool they used to own will be for sale soon, or possibly demolished for a mansion to be built. (House in the area go for about $2.5M when improved with very large, new houses.)*

I poke around PropertyShark.com when I see a house bought cheaply at a foreclosure auction. Quite often the (former) borrower had inherited the house, treated it like a piggy bank, defaulted, and boom--no more house.

It never makes sense to put a house at risk for a small amount like $5000. If you can't pay those credit card bills, the lenders can hound you and maybe get a court order to extract something from your checking account every month, but they can't take your belongings. When you sign a deed of trust or mortgage, you're giving a third party the right to kick you out of your home and take possession of it. You don't have any say in the matter. You might go to court, and say whatever you feel like saying, but if you owe many payments and can't pay them immediately, you're very likely to be out of luck.

Someone mentioned paying off credit card balances with the highest interest rates first. That's done by throwing whatever cash you have at them while paying the minimum on the lower-rate balances. That's financially sound, but there's a technique that turns out to be more motivating for some, which is attacking the lowest balance first. It leads to the quickest reduction in the number payments you're required to make every month, and quickly lets you add the money you were applying to the smallest balance to the payment you make on the next-smallest balance. (Close each card as you pay it off if you don't want to accumulate debt again.)

P.S. I don't know what your home's feed is, so I didn't address that. If it's some kind of rental income, every lender I have encountered credits 75% of the current monthly rent toward your gross income. They assume there will be vacancies and other costs.

  • 1
    This answer is really inappropriate considering the question. If you want to give a sermon on hard-money lenders, consider asking your own question and answering it. – NL - Apologize to Monica Oct 4 '16 at 18:24
  • @NathanL -- The OP asked "can use my home and its feed as collateral for a 3000-5000 dollar loan". DesdeCuando said "Yes, with a hard money loan" and then explained what that is and also listed the caveats. How is the answer inappropriate? I just upvoted it. – O.M.Y. Oct 5 '16 at 15:13
  • If you think a hard money loan is appropriate with an asset worth many times the value of the loan, go ahead and upvote. It looks like you're the only one. – NL - Apologize to Monica Oct 5 '16 at 23:01
  • @NathanL The answer in short is "You can use a hard money loan to borrow against a house, but it is very dangerous." Valid answer. And good information to have. I learned something. He makes it pretty clear that he would most strongly advise against doing it. Appropriate has nothing to do with it. It is technically possible. OP may run across such a thing in searching for financing. If OP reads this answer, she will know to run screaming. – Xalorous Oct 20 '16 at 16:57
2

You can.

You can take out a conventional mortgage and keep the cash. A mortgage is nothing but a secured loan against your home.

You can open a HELOC and treat it as a negative-equity bank-account.

Note that both a mortgage and a HELOC tend to have significant up-front or administrative costs attached to them. It costs the loaning institution some money to ensure they are in a safe position, and they will want to pass it on to you.

They don't want you taking out such a loan and not using it.

On the other hand, the interest rates on such a loan are often much lower than interest rates on other loans.

If you have a reliable source of significant income, getting a completely unsecured line of credit may be possible with a rate only a few percentage points higher than a HELOC without having to pay a cent in fees. The bank doesn't have to appraise your home or ensure ownership before such a loan, just assess income (which is easy, especially if you have a regular paycheck auto-deposited into an account at the same branch; toss in some signatures from your employer and good to go).

If that is feasible, you could end up with a lower rate. Withdraw from the line of credit, pay off your other loans, then work to repay the line of credit.

If an unsecured line of credit has a rate 1-3% higher than a secured one, and you are borrowing 5000$ against it and pay it off over 2 years, the total interest you would save from a secured line is about 50$-150$.


Note that in some jurisdictions your home is protected against loss from bankruptcy, unless you have used it as collateral for a loan, or it is easier to claim the home if you are insolvent if you have used it as collateral. Determining what the consequences of securing your loan against the house could itself be expensive.

  • 1
    @KimberlyBoudreau Also, if you default on HELOC and/or a mortgage there are serious repercussions. I do not know how defaults are treated for HELOC, but for a mortgage, the house is foreclosed. Title is transferred to the lienholder. You lose the house, including any equity in it. – Xalorous Oct 20 '16 at 16:51
-1

Pete B mentioned adjusting your payments using the Debt Snowball Method and I agree it is one possible solution, another being the Debt Avalanche Method. Here is a link that describes both.

There was a time in my past when I had 17 credit lines open totaling about $12,000. If I had paid them the way the banks asked (minimum monthly payments) it would have taken decades to pay off. Then I was shown these two techniques and as a result I was able pay them down rapidly and close all but 2 lines within 5 years.

Like others I am going to say that if you already own your house free and clear never Never NEVER put a loan on it unless the loan is (a) to improve the house, or (b) a life & death emergency. If you get sick or fired and miss even a single payment on a HELOC you could lose your house forever and that just plain sucks. Not only will you then be forced into renting a place (money down the drain) but your credit rating will take such a huge hit it will be years (if ever) before you can even try and buy a new home.

Debts come and go, as do the "toys" and other things we buy with that debt. Homes are security & stability for tomorrow. Never give that up for a little ease & comfort today.

UPDATE: I had to go looking for it but here is some software that I used all those years ago to figure out my strategy for paying down all my credit bills. It's a bit clunky but it's super easy to use plus it has some other variations on snowball and avalanche methods as well. I definitely found it helpful.

  • Its highly unlikely that this will work in this person's case and it rarely works in most people's cases. One must understand that becoming debt free is more about behavior than math. – Pete B. Oct 5 '16 at 12:17
  • @PeteB.-- The first step in either of these strategies is "stop using your credit cards" ... aside from that you are making a huge negative assumption about the OP's ability/willingness to learn and to change their behavior which as far as I can tell has not been described or even mentioned yet. – O.M.Y. Oct 5 '16 at 15:09
  • 1
    @PeteB. uses anecdotal evidence, but has a valid point. In order to make any debt elimination strategy work, the person has to be committed to it, stop using credit of most kinds, and learn to defer gratification of desires. Prior to 60 years ago, you saved for what you wanted to buy, and waited to get it until you could buy it. The only real credit available to individuals was a mortgage. 30 years ago consumer credit exploded and credit cards allowed people to buy now and pay later. To eliminate debt, one eschews consumer credit, and returns to a generations old philosophy. Always use cash. – Xalorous Oct 20 '16 at 17:08

protected by Community Mar 7 '17 at 20:47

Thank you for your interest in this question. Because it has attracted low-quality or spam answers that had to be removed, posting an answer now requires 10 reputation on this site (the association bonus does not count).

Would you like to answer one of these unanswered questions instead?

Not the answer you're looking for? Browse other questions tagged or ask your own question.