Home Equity Loans in Bailout Time

It might be a good idea to set up a home equity loan or line of credit in these tough times. You don't have to use it right away, but rather keep it safe in the bank. With bailout looming to its beginning banks may not open up their vaults and lend money everywhere. Banks most likely will be creating new programs, some of them with tougher guidelines to get approved.

There is nothing wrong to have cash sitting in your account. Many advisors will be against home equity loans as you would acquire more debt, but you never know what might happen with our economy.

Even if Congress injects billions of dollars to banks directly, it does not mean that banks will be lending or opening up their credit lines right away. Also that does not mean that home prices will go anytime soon.

Home prices will see again decline this year. There are still home-buyers but there are still ones who cannot get qualified. A year ago, you can have 620 credit score and no down payment, but nowadays you need 660 credit score and at least 20% down payment.

Not many people have 20% down payment, which reduces home buyers. Those who do and are able to buy a home may wait to see how prices will respond or negotiate lower offers, thus, reducing property value of your home along the way.

If banks will be more than willing to reduce their credit guidelines than we should have flood of new buyers. New buyer's means prices should go up as more and more homes will be sold. But if banks and lending institutions learned their lesson, they will keep their guidelines where they are now.

As a homeowner you can see value of your home plummet 10%-20% this year and next year with recovery predicted by many experts of 2010. You may never know what might happen, you might loose a job or loose investments or any emergency may occur, in which case home equity loan would be a good idea.

Home equity loans were designed for home improvement, but many people use them for anything they want to. As an emergency situation, home equity loan is a good idea, especially in though times like these.

Government has tried to persuade Wall Street that by buying bad mortgages from banks will solve financial crises. However, this plan takes time and we may see some action next year. The next step for Congress is to inject capital directly to banks. TO do that Congress needs to look closely which banks need the capital, which can be consolidated or even merged.

With mergers of more banks, credit will be an issue as this situation in the market cannot happen again. Credit guidelines may change again, and if you wait for your home equity loan, you might have more difficult time to get it.

Only times will tell how financial markets will respond to $700 billion dollar bailout plan. If government buys up stock equity with direct injection of funds, government will initially make profit and reduce the taxpayer bills of $700 billion to less. This can happen if banks will recover.

To recover a bank, a lot of restructuring is needed, especially in lending market. Credit may change or even ease little bit, so banks can become profitable over period of time.

With home equity loan, you can safely wait and see how markets will respond. The cash that you will get will be there for you if needed, but again this is additional debt that needs to be repaid. If property values drop additional 10% next year, your home equity loan can serve as recovery point for a long time as you may take out cash as you need.