Home Loan

Home Loan - Make It Yours

Applying for a home loan will show you one thing really fast - you can't afford everything. No matter how much you make, there are imitations as to your purchasing power and your financial flexibility. Applying for an equity home loan is a luxury most home owners can't afford, and even those who can need to be careful with the amounts they access.

The difference between equity and ability

Everyone has seen the offers screaming about 100% or 125% equity financing:

Hurry Hurry Hurry!

This opportunity won't last!

The greatest home loan in the history of mankind!

And you have to admit, it is a bit tempting to take a second look and consider the possibilities - yes, you do have a lot of equity and why shouldn't you be able to access it all through home loans! Why shouldn't you? Because you can't afford the costs of an additional home loan of that magnitude, thats why.

A home loan example

Lets say you purchased an Arizona home in 2004 for $250,000 with a $200,000, 30-year home loan, and you have a great low rate of 7% resulting in monthly payments of around $1300 a month. $1300 a month for a loan is no chump change, but lets say you earned about $70 K a year, making your take home pay about $5000 a month.

After your first year of home ownership you average Arizona home increased in value by about 30% - egad! You suddenly have $75,000 in equity without really lifting finger! You find a lender offering a 125% equity home loan - $93,750 - and you take it, and agree to a ten year, 9% fixed rate home loan.

Put the two loans together and you have the incredible low cost of...$2480 a month! Thats half your monthly income, and when you take out taxes, insurance and utilities you are running on fumes!

The point is that no matter what you make or how much room you have in your income, you always need to carefully consider your choice in a home loan - there is a limit to your equity ability.

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