Posted by Rod on April 29, 1999 at 07:13:11:
Thanks for the info! That cleared up a lot.
Rod
COULD SOMEONE EXPLAIN EQUITY LOANS OR LINE OF CREDIT - Posted by Rod
Posted by Rod on April 28, 1999 at 15:43:02:
Could someone please explain how an equity loan or equity line of credit works. I have a contract on a property of $60K, it is currently being rented and comps are 90 to 110K in the area. The property is not in doll house condition but the tenants are happy. The rent is only $550 + utilities, but I was excited about the value of the house. Any suggestions will be helpful. Thanks
Rod
Re: COULD SOMEONE EXPLAIN EQUITY LOANS OR LINE OF CREDIT - Posted by JohnBoy
Posted by JohnBoy on April 28, 1999 at 16:23:00:
An equity loan is a second mortgage the bank will take out against the property. An equity line of credit is pretty much the same thing, but instead of the loan being amortized over a fixed period of time with a monthly fixed payment like an equity loan, the equity line is like having a line of credit like a charge card. The bank secures the credit line with a second mortgage for the amount of your credit line. They give you a check book where you would just write checks for what ever amount you need up to the limit of your credit line. They will usually charge you monthly interest only payments on the credit line and you pay what ever amount you want each month in addition to the interest only payments to pay down your principle balance owed.
If your going to try and get a equity line of credit or an equity loan against a rental property the bank will usually only allow up to 75% of the monthly income from the property to qualify you for the amount of what your payments will be to determine the amount of credit they will extend you.
So if you were getting $1,000 a month in rent, then the maximum amount your payments can be is $750 a month total with both loans. The 1st and 2nd mortgage.