Solidifying A Better Future For My Kids
Home Equity Loan? Business Loan? FAQs About Your Financial Options
Jackie Watts
Are you new to banking and loans? Whether you're a young adult who recently bought your first home, an entrepreneur who is ready to start your own business, or a first-time borrower, take a look at what you need to know about options, such as the home equity loan and a business loan.
What Is Home Equity?
You have a home—and you think it has equity in it already. Before you take the next step, you need to make sure you understand what equity is and determine if your home has it. Home equity is the difference between the value of your home and the amount you still owe on your mortgage.
The larger your down payment and the more money you pay toward your monthly mortgage, the higher your home's equity becomes. Your home's equity may also go up due to property appreciation. This is an annual percentage increase based on the current value versus the original purchase price.
What Is Home Equity Lending?
If your home does have equity in it and you need extra money to make a large purchase, upgrade your home's interior/exterior, make home repairs, or want to start a business, you may want to explore a home equity loan program. This type of program, which is also commonly known as a second mortgage, allows you to borrow against the equity of your home.
Your home's value serves as the collateral for this type of loan. The lender will look at the combined value-to-loan ratio (based on the appraised value of your home) to determine the amount of money you can borrow. You will get one lump sum and pay the money back monthly. If you decide to sell your home and have not paid off the loan, the lender will expect you to use proceeds from the sale to fulfill the loan.
What Is A Business Loan?
If you want to start a business or need an influx of cash to keep your current company going, you could use money from a home equity loan. But this is a risky proposition that puts your home on the line. Whether you aren't willing to risk your home, you don't have a home, or your home doesn't have equity, you can still explore a business loan.
As the name implies, a business loan is money that you borrow (at an interest rate) to use for business-related expenses. These include loans from private lenders and U.S. Small Business Administration (SBA) guaranteed loans. SBA loans typically have lower rates and fees than other options. But not every business owner will qualify for each type of SBA loan.
Contact a local financial service to learn more about different loan options, including home equity loans.
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One day a few years ago, I was forced to take a good, hard look at my finances. I realized that my husband and I were living outside of our means, and I knew that we needed to make some changes and fast. I started looking for ways to spend less money, and I was able to completely eliminate some of our largest expenses. It was a lot of work, but it really helped us to feel more free financially. This blog is here to help other people to spend a little smarter and to avoid the hassles that come along with spending more than you have.