74

To supplement existing answers: the appraised value does not necessarily represent the net amount the bank could actually recover with a foreclosure. Let's look at it from the point of view of the bank. Suppose the property appraises at $200,000 and they do what you want: loan you $200,000 with the property as collateral. Now suppose a short time later, ...


44

IMHO, the word partner is relevant and changes the answer. If you had used the word friend instead, I feel that the most fair equity breakdown would be based on the contribution amounts. But in this case, the word partner implies that you are in this together, and if your income situations reversed at any point of time the contribution amounts would also ...


38

There is no "standard practice". The terms of ownership should have been put in writing when you bought the house. Without anything in writing, the equity should be split in whatever manner you both can come to agreement on. Splitting based on total contribution would be fair in my opinion, but there's no law or anything that I am aware of that would ...


25

Home equity loans are generally subordinate liens. Mortgages are generally first position liens. In the event of a short sale or foreclosure, the first position lien gets paid off first, and then the subordinate (second/third/fourth/etc) position one. So therefore home equity loans are more risky. Also, the application requirements are much simpler and ...


19

Pros: Your mortgage payment is lower Cons: Your mortgage payment is artificially low, nothing goes towards principal. The rates are adjustable; given that rates are historically low, where do you think they will go? Given the variable rates, and nothing being paid to principal, you greatly increase your risk of paying on a home. Before the housing bubble ...


18

The bank I work with would be more inclined to expand an existing HELOC rather than write a new one. I think that would be your best bet if you decide to continue borrowing against your home. Consider that your own income would have to support the repayment of these larger homes. If it is, why didn't you buy a larger home to begin with? As far as increasing ...


17

This statement is a come-on, an attempt to impress you with the "wonderful deal" you would be getting if you bought the house. It is not a reality-based statement. Equity is just a fancy word for how much something you own is worth in cash to you. If you own a bicycle, you could maybe sell it for say $20, so you have equity of $20 in it. This is despite ...


15

home equity loans are typically a little higher than the rates for mortgages used for a home purchase. Why is this? Is the reason because a home equity loan is basically a second mortgage, so it is riskier than a first mortgage on a property? Given all other things being equal; A traditional mortgage, i.e. getting a loan from bank to buy a house is seen as ...


11

(Before) You start by owning land worth $30K. (After) You end owning a house on that land, and owe the bank $60K for a house+land worth $90K or more, hopefully. The bank now views this as you having 66% loan to value, or as if you put 33% down payment. Yes, if you default, you run the risk of losing the land. You'll get some money back, but foreclosed ...


11

What is fair is hard to say without knowing all the details. If one person put in more cash but the other person did a lot more work on repairs and maintenance, presumably that "sweat equity" is worth something. In a divorce, courts generally say that each party is entitled to half the value of any assets acquired during the marriage, regardless of how much ...


10

Four years into the mortgage, here is a table showing how much principal you would be able to pay off assuming a 30-year amortization with a fixed interest rate and a monthly payment. Rate Paid Off 3% 6992 4% 5989 5% 5096 6% 4308 The amount of interest that is paid each month can be easily calculated by ...


10

If I have a house that its market value went from $100k to $140k can I get HELOC $40K? Maybe - the amount that you can borrow depends on the market value of the house, so if you already have $100k borrowed against it, it will be tough to borrow another $40k without paying a higher interest rate, since there is a real risk that the value will decrease and ...


8

I think you're missing a couple of things. First - why do you think its a reverse mortgage? More likely than not its a regular mortgage - home equity loan. If so, if they expect the stock market to rise significantly more than the amount of interest they pay on the loan - then its a totally sensible course of action. Second - the purchase in cash only to ...


8

Given the current low interest rates - let's assume 4% - this might be a viable option for a lot of people. Let's also assume that your actual interest rate after figuring in tax considerations ends up at around 3%. I think I am being pretty fair with the numbers. Now every dollar that you save each month based on the savings and invest with a higher net ...


8

Can you put this first home down as equity when getting a mortgage for your second? (I think you mean "collateral", not "equity") Not with a traditional mortgage. The mortgage will be a lien on the subject property, so adding additional collateral does not help unless the mortgage is underwater. Would it be possible to get a near 0 rate given the equity ...


8

Yes, the product you want is a fixed rate loan. As rates were dropping in the late '90s, I went from a "Mortgage" to a "Home Equity Loan." The latter had a fixed rate, 15 year term, and a crediting structure for payments that ran by the day. i.e. unlike a mortgage whose amortization is unchanged if you make every payment 10 days early vs 5 days late, this ...


7

Equity is made up of the amount of any principal you pay off plus any capital gain - costs on the investment. Unless you have an interest only loan you will pay off part of the principal from the start, however it will be a very small part at first and will increase as time passes and you pay more and more of the principal off. If you sell for the same ...


7

If you get a loan for 80% of the value of your house, that's equivalent to buying a house with a 20% down payment (assuming the appraised value is what you'd buy it for). That's the minimum down payment for Fannie Mae backed loans without PMI (mortgage insurance). See this table for more details. Freddie Mac (the other major mortgage backer) has a good ...


7

This question is really a variation of rent vs buy. Try looking at it this way - If you bought it 50/50 and rented it out, what would you both get? Now, moved in, you are effectively collecting that rent, but half is your own money, half is from the partner. Is the half you are getting the from the partner equal to 1/4 of the mortgage. This sounds ...


7

You'll be taxed when you sell the house, but not before that (or if you do some other transaction that realizes the gain, talk to your real estate attorney or accountant for more details). A Home Equity line-of-credit is simply a secured loan: it's a loan, conditioned on if you fail to pay it back, they have a lien on your house (and may be able to force ...


7

Loans are not taxable events. The equity you took out is not income. It's a loan, and you pay it back with interest. You pay taxes on the capital gain of the home when you sell it. The tax does not take into account any mortgages, HELOCs, or other loans secured by the house. Instead the tax is calculated based on the price you sold it for, minus the price ...


7

To answer the 401(k) part: I'm basically "borrowing from myself". Yes, but the "interest" rate is rate at which your 401(k) grows, since you're missing out on the gain that the money would have earned if it has stayed in your 401(k). So if the market goes up another 21% like it did in 2017, that's the effective interest rate of your loan. Considering ...


7

As Ron’s comment implies, it’s a matter of the numbers. My HELOC recently reached the end of its draw period, and I preferred to keep it active. I opened the conversation with the bank by saying I was retired and no income other than retirement accounts. I put together those documents (I mean copies documenting 401(k) and IRA balances. They did not ask for ...


7

"Second Mortgage" is not a legal definition - it just describes a mortgage or loan that is subordinate to another loan, meaning that in the case of foreclosure the other loan is satisfied first. If the "first mortgage" is paid off, then there is no loan to be subordinate to, so the "second" mortgage then is first in line in the event of foreclosure. So ...


6

There's no objectively correct answer to this question, given your circumstances. Ideally, the stepmom would put in 60% of the downpayment and 60% of the monthly maintenance costs and mortgage. You and your partner would evenly split the 40%. Then, it is very obvious. However, my guess is that this isn't going to be the situation. Without knowing the ...


6

In economics, there is a notion called the Sunk Cost Fallacy. In a nutshell, the sunk cost fallacy says that human beings tend to prefer to "throw good money after bad" because of a strong loss aversion. That, coupled with how we frame an issue, makes it very tempting to say, "if I just add these funds, I'll recoup my loss plus..." In reality, the best ...


6

Banks and lenders have become a bit more conservative since the housing crisis. 80% is a typical limit. The reason is to minimize the lender's risk if declining property values would put the borrower upside-down on the loan. http://www.bankrate.com/finance/home-equity/how-much-equity-can-you-cash-out-of-home.aspx


6

I've heard that for the first few years, I'll only be paying down the interest of the mortgage, and not the principal Interest-only mortgages might be available to you, but otherwise that's not correct. For a repayment mortgage, the lender calculates (on the counter-factual assumption that the interest rate will not change through the life of the mortgage)...


6

In short, your scenario could work in theory, but is not realistic... Generally speaking, you can borrow up to some percentage of the value of the property, usually 80-90% though it can vary based on many factors. So if your property currently has a value of $100k, you could theoretically borrow a total of $80-90k against it. So how much you can get at ...


6

To add onto Adrian's answer, a HEL could carry a lower interest rate than a mortgage. Putting a HEL in first position, with a short term will generally result in a rate that is lower than the prevailing 15 year. For example one person I know replaced a 15 year fixed conventional with a 7 year fixed HEL in first position. This resulted in a rate about a ...


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