California home equity loan
Every one knows, the home equity loans is a dangerous loan and one stands the risk of loosing ones home if the repayments are not regular. There exists a danger of getting a predatory lender who can trap you in a deal that is difficult to meet as the loan proceeds. But in California the very idea of taking an equity loan is exposed to many dangers. This is explained if one considers some statistics.
If things are o.k.if the running is smooth but what if there is trouble with your job or with the company with which you are working and you have to be laid off. It is but natural that house mortgage loan will be sought at that time, but since the income level is less the banks will refuse the loan. Now you have to approach some subprime lender which may give loan on a higher interest and stricter terms or the other option is that you sell the house and since the values of houses have increased you may get another which is smaller and in not so good environment. This can happen to most middle-income Americans. 67% people own their homes and can face this calamity of taking equity home loans when in trouble. The alternate recommended is to invest in bonds or stock where the earnings may be less but they stand diversified and are useful in difficult times as one does not have to go to these dangerous loans.
For a medium home 30 Yrs loan at the rate of 5.85% with no clearing payments like down payments etc. the monthly installment will be about $3200. Average salary in California is estimated as roughly $40,000. This means after paying taxes the carry home salary is apx. $3000 at the maximum. This clearly means more than 50% people in California cannot normally afford a home.
In general it is expected that for a proper financial planning 1/3 rd of pay should only go for loan payment. Even if some people stretch it and make it 50% then taking into account all cuttings etc. a man must work at the salary of $7000 per month or apx. $85,000 per year to be able to afford this loan. This leaves only a few in California who can comfortably own a home. All others put themselves in very great risk by opting for a California home equity loans. In general both husband and wife team works and it becomes absolutely essential that there should be no trouble in eithers job throughout the loan period.
Apart from this the Californians want better cars, boats, holiday homes etc. and when one combines all these costs, they come into the category of people living in great risk zones. The right planning at this time seems that the equity in homes should be sought but the money should be conserved so that you donot fall back in payments if you get sick or have problem with your job. If later the housing market falls and the prices are not so good at least this will not effect you. Once the decision of going for loan is taken after reasonably protecting one from economic shocks the other dangers in California are same as anywhere in USA.
Fraudulent Lenders:
Many attractive deals are advertised by the lenders, who have many salesmen working, so as to take advantage of the boom in home equity loans market. Some very costly and troublesome deals are offered and if one is not careful these can be of much harm later. Naturally the brokers get a higher commission for these deals.
Federal Trade Commission has laid down some norms for the borrowers in this regard. They are :
A borrower should expect trouble if the lender is doing following things:
1.Encourages you to give wrong information about yourself in the form to get the loan.
2.Urges you to borrow more than you need
3.Makes you accept some difficult terms.
4.Fails to give you disclosures required by you
5.The final loan agreement is much different than what was agreed upon initially.
6.Asks you to sign forms that are blank
7.Avoids giving you a spare copy of the agreement
These predatory lenders take advantage of the colonies one lives in and mark those colonies where elderly, non English speaking, less educated people live and try to sell all sorts of fraudulent deals which will drain their equity and finally result in the loss of homes. The subprime lending increased from $35 billion in 1994 to staggering 160 billion in 1999. California apart from Texas, are the hot spots for this type of lending.
Real estate agent:
To choose a real estate agent or a mortgage broker the first thing is to consult community people for their authenticity and genuineness.
These people should be carefully interviewed and all the terms should be put in writing. Questions should be asked about their background, how long they have been in business, any past clients and their addresses for cross checking, and their past performances in last few months etc. It is always better to get everything put on paper. In the type of market that exists today these are very useful people and can save lot of trouble and save lots of money.
Conclusion:
Lots of cases come up everyday when a 15 year loan extended to 18 years as the interest rate increased in between and no one cared about it. So many homes were lost in Fore closures. So many dollars were spent extra for the same loan as the deal was defective, etc. At these times when the home prices are at the peak and the interest rates very low this type of loans are the best and all are taking advantage of it. But every individual case should be dealt separately as too much of hurry can put oneself into great danger in future. Sometimes the very house can be lost on which the loan is based.
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