Question: >I bought a house 5 years ago and just recently discovered that my roof is in >worse condition than I previously thought. I need to do some serious repairs >(New roof and wood repair)
>I will probably only need about $3-5000 but I >need it before the rainy season starts. >Due to an injury I am out of savings >and just barely back on my feet. I cannot afford the payments of a regular >loan and would probably need to replace or modify my home loan….
Answer: I’d be surprised if you can do it that cheaply. Have you got written estimates from a couple of reliable contractors? Either of those would technically be a refinancing, which is likely to cost you a few hundred dollars in fees. Unless it comes with a substantial reduction in interest rate (unlikely), you very likely don’t want to do that.
A home equity loan is essentially a second mortgage. It is guaranteed by the equity in your house, which is what it would sell for, less the balance outstanding on your first mortgage. The good news is that banks like to make such loans because the security is good. The bad news is that this is a mortgage and if you default on it you can lose your house.
But a bank will also want to look at your income, to be sure you can make payments. If you currently have a steady job but are new at it, that will count both for and against you because they prefer a longer track record.
I suggest calling a few banks and asking about home improvement loans, or home equity loans for the purpose of making repairs. (Try out both terms.) Ask what the APR (annual percentage rate) would be. Though of course you do need to know about the monthly payment, don’t accept a lower monthly payment at a longer term. Some finance companies like to suck you in with a higher interest rate that looks lower because the payment is lower but there are more payments, so overall it’s a worse deal. But by law the APR must be disclosed to you, and you can compare APRs among banks. You will have to think very seriously about fixed versus floating rates. With a floating rate, you get an initially lower rate than with a fixed rate, but you are gambling that interest rates won’t rise while you are paying off the loan. (I think they will, but I have no special expertise.)
One other avenue you might check: Call your city’s office of housing preservation or housing inspection (or even the main switchboard) and ask if they have any sort of loan program or assistance program for home repairs for lower-income persons. (You may need to make the same call to your county and state too.) It can’t hurt to ask. The city where I used to live offered 0% financing for five years, and a few hundred dollars of direct assistance. If you had very low income last year, it would not matter what your income might be this year. Of course that was just one city’s program, but again it can’t hurt to investigate in your area.
Related posts:
- Home repair financing question
- Home Equity Loan Question
- Creative financing ideas, if you please
- Consolidating DEBT with a HOME EQUITY LOAN ???
- Putting off roof repair.
- real estate question
- question about 1st home loan process
- Personal loan question
- First time buyer – Mortgage question
- Credit card vs loan question
- Hard Money Lenders – Information
- Will refinancing affect FICO score before purchasing second home?