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Tips for a Home Equity Loan Refinance

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Many homeowners have learned the hard way that a home equity loan refinance can be complicated. Unfortunately the guidelines changed dramatically on equity loans when property values began to plummet.

Before the sub-prime mortgage crash in 2006 millions of Americans took out home equity loans between 2000 and 2005.  At the time it was easy to take out a second mortgage.  Most borrowers were able to qualify for an equity loan, whether they had good or bad credit and equity or no equity. Basically borrowers with poor credit and good qualify for a 100% home equity loan.  Many of these borrowers defaulted on these loans, but many of these borrowers continued to make their home equity loan payment and find themselves stuck with a 2nd mortgage.  Since then, interest rates have fallen to record levels, home values have depreciated nationally and home equity loan refinance guidelines have tightened significantly.  In 2011, lending rules for home refinancing have become more complex.

When borrowers took out their equity loans, property values were rising so it was easy to roll the 2nd mortgage into a 1st mortgage. It was also easy for a home equity loan refinance because lenders had access to many 2nd loan products. When the default rates increased and property values decreased, these home equity refinancing options disappeared.

  1. Maintain a good credit – Having high credit scores will always give you more options and the best opportunity for a home equity loan refinance.
  2. Consolidate your equity loan – If you are under 97% loan to value, there is a good chance you may qualify for a FHA refinance that enables you to consolidate your equity loan into a low rate 1st mortgage.
  3. Negotiate paying off your 2nd mortgage – Chances are your home equity lender will entertain a discounted buy-out of your equity loan. Since the default rate is so high, lenders are accepting pennies on the dollar for borrowers will to pay off their equity loan or line of credit.

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