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
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%
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
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