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There is an old saying that a pool is a hole in your backyard that you throw money in. The same is said of boats being holes in water. Regardless of the benefits you get from your home they are very expensive both to acquire and renovate and require significant amounts of capital either way. Most people don't have this much money on hand and need to finance their home purchases and major home renovations with different types of financing. The most common option is a secured homeowner loans. This article will discuss what these are and how they are commonly structured.
What are secured homeowner loans?
When a person borrows money on a loan related to their home, either for its initial purchase price or for a major renovation on their home, the loan is typically secured by the value of the home. That means if the person borrowing the money on the home were to default on the loan by going bankrupt or by simply not paying back the lender, the lender would have the right to the home before any other creditor has access to the home. In addition, the lender can often pursue other unsecured assets of the borrower if the home value is less than the outstanding loan amount. Lenders try to decrease the risk of this happening by lowering the amount that they will loan to a borrower to an amount less than the value of the home. For new home purchases, mortgage loans are commonly only for 80% of the home's sale price. If the borrower negotiates a loan for less than 20% they typically end up paying prime mortgage insurance (PMI) to provide further protection for the lender that they will not walk away from the loan if the home depreciates in value.
The process of a lender protecting themselves by having security in their home loan is typically through a first lien that they place on the property. This lien shows up when other lenders are considering lending money to a person and lets other lenders know that in case of a bankruptcy or default, the home is secured through a first lien. If a person were to get a second lien on the property the second lien holder would not be able to recover on their loan until the first lien holder was paid off.
Virtually all first mortgage loans have a first lien on the home that is being purchased while second mortgages and home equity lines of credit tend to have second liens on them that proivde some but not full protection for the lender.
Why Secured Home Loans?
The major beneift of secured home loans for an lender is the added protection that they have on their loan to increase the chance for a loan repayment or at least loan recovery. For borrowers the advantage of secured homeowner loans is the lower interest rates and greater access to credit that borrowers will have on these loan types over other loan options. This means that borrowers can borrow more for les with secured homeowner loans making the purchase of significant homes possible for those with limited capital for a home purchase or major home renovation.
How To Go About Getting A Secured Homeowner Loan
To get a secured homeowner loan you simply need to find a lender and apply for the loan. If you qualify for the loan they will handle the process of writing the loan agreement to provide themselves with the secured loan. You simply need to sign and approve the security that you are providing them with.
However you will also need to perform research on the secured loan that you will be taking out including making sure that you are only giving them a limited amount of security on your home and not other assets that you own. In addition, make sure that the interest rate that you are paying on your secured homeowner loan is competitive and fair given the added security that you have and that you can structure the secured homeowner loan in a manner that fits with your financial budget and economic situation. Research using loan comparison websites and do a thorough comparison of the different options when you are obtaining a secured homeowner loan.