Real Estate and Home Equity Lines of Credit

Is it time to renovate your kitchen or bathroom? Do the floors in the living room need refinishing or the house need paint outside? All of these can be expensive and we don’t always have adequate savings to pay for major remodels. What are our options? A home equity line of credit can be our savior.

A home equity line of credit or HELOC in banking parlance, is a mortgage secured by your home with a deed of trust. It can be a first or second mortgage depending on your home’s current encumbrances.

A second mortgage can be a loan or a line of credit with the line of credit option the most popular. By taking a fixed term loan, one must start repayment with interest immediately on a monthly basis; even if you have not used the funds yet and they are sitting in a savings account. There are times and places where a loan may be a good option for your second mortgage.

The HELOC tends to fill the bill rather nicely for renovations and remodels. The interest rate is based on one of the common indexes like the LIBOR (London Inter Bank Offered Rate) or the Wall Street Journal Prime Rate which is an index based on the prime lending rate of 30 banks. A prime lending rate is the rate at which the bank lends to its best customers. The adjustable rate of the HELOC usually is a “prime plus” interest rate. This may be prime plus 2%, 3%, etc. The rate will change as the market changes. If today’s prime rate were 3.5% and your HELOC was prime plus 3%, your rate would be 6.5%.

A HELOC is a line of credit where its maximum loan amount is based on your home’s value. Most financial institutions will allow you to encumber up to 80% of your home’s value with a HELOC. We refer to this as a loan to value ratio or LTV. Here is an example of loan to value calculation for a HELOC:

Home Value:                $300,000

First Loan Amount:       $180,000

Max Equity 80%LTV   $240,000

Max HELOC               $ 60,000

In the case above, the home would qualify for a $60,000 line of credit.

This house qualifies but does the homeowner? In underwriting, we will match up your

housing costs (principal, interest, taxes, and insurance) with any additional debt you may have to determine the amount you have available to pay on your debts. This ratio can be calculated as 35% to 45% depending on the underwriting guidelines of the institution. In example: If the ratio is 40%, the maximum debt to income ratio amount would be $400 for each thousand dollars in income.

The home equity line is an excellent way to leverage the unused equity in your home and make substantial improvements that can increase the value of your asset. Here at Meriwest Credit Union we can typically provide a preliminary approval within 24 hours. These HELOC deals run about 3 weeks from start to finish. The main hold up is getting the appraiser to the property. There are a limited number of them and a great many properties waiting for to be appraised.

Interested in doing some work on your home? Here is a link to our Home Equity Line of Credit page.

Federally insured by NCUA. We do business in accordance with the Federal Fair Housing Law and Equal Credit Opportunity Act.
Copyright 2013 Meriwest Credit Union. All rights reserved.

Consolidating Debt with Personal Loans - Good idea?

The New Year is nearly here. A lot of us are thinking about our finances and how we can improve them in 2013. Personal loans play an important role for those who are trying to get out of debt quickly. Properly used, they can be an easy way to paying off high interest credit card debt. If they are used improperly, they are a fast ticket to a lower credit score.

Let’s keep in mind that bill consolidation, from the standpoint of a credit union, means eliminating debt, building credit scores, and creating a consumer solution that can be easily managed based on the member’s income. Depending upon the extent of the member’s debt, we will often ask that they close several of their outstanding credit cards. Why? It will do no good to consolidate their debt and have them run it back up. We will take a look at their credit and income to determine what credit can be retained by the member and what they would need to close in order to receive the loan or line of credit for the bill consolidation.

Often, CU’s will recommend a member gets credit counseling prior to their consolidation. Credit Counselors teach the member how to budget, to use their online banking to manage their finances, and help them understand the consequences of extensive debt and its effect on their credit scores. It can also be helpful if the credit union offers workshops on these subjects as Meriwest Credit Union does. For more info on personal lines of credit, click here.

Any bill consolidation should offer you a lower rate of interest than that which you are currently paying and a more affordable payment. Currently, for someone with a 740 FICO score, we can offer 15% on a personal bill consolidation loan or 10.50% on a personal line of credit. Please keep in mind the line of credit is adjustable and when rates go up, which they will, this rate could rise rather quickly.

One of the dangers of bill consolidation is irresponsible borrowers. A person can get a consolidation loan, consolidate their debts into a more reasonable and affordable alternative and then go out and acquire more debt. This completely defeats the purpose of bill consolidation and puts them on the fast track to a low credit score or worse.

We must also consider that closing out a credit card account can lower your credit score. Closing out cards that we have had for a long time will negatively effect our credit. When those credit lines are removed we lose the available line as part of our balance ratio calculation (for more info on this, see our blog “Your Fico Score, Mystery No More”) and we lose the history of managing that credit after a few months. Opening a new line can offset some of the FICO points lost to closing a line.

Don’t want to close the line of credit? You have some options. You can cut the card in half and simply not use it thus leaving the account open. If you are a disciplined person, you can lock your credit cards in a drawer and avoid using them; out of sight, out of mind.

Homeowners have another option available to them; the Home Equity Line of Credit or HELOC. The HELOC is line of credit based on your home’s equity. Typically, it has a lower rate than unsecured personal loans and may offer tax advantages for some homeowners. It is handy for home improvement, bill consolidation, and a myriad of other uses. As a matter of fact, Equity Lines of Credit are worthy of their own blog! We will have one for you on that next year.

Alternatives: There are offers from credit card vendors to transfer balances at a lower rate. They encourage borrowers to use a credit card check to pay off debt at other vendors and transfer that debt to their card. Consumers need to be mindful that the low interest rate offered on these is usually a teaser and may go up in time. Some cards may offer a lowered rate for the life of the transferred debt. These can be a pretty good deal provided the borrower is responsible and does not incur further debt during the pay off period. But don’t miss a payment! You could be subject to penalty interest and see your preferred low rate rise well above 18%.

Some things to consider before combining balances on another credit card:

-          Do you have adequate credit limit for the transfer?

-          Is the Introductory rate a temporary Teaser Rate or fixed for the term of payoff?

-          Is there a fee for the balance transfer? (this increases your cost of borrowing.)

Finally, before considering any consolidation, can you buckle down and get out of debt on your own without help? Can you rearrange your budget, be disciplined in your spending, and commit your spare dollars to paying off your debt? If one eats out for lunch everyday, it can cost over $35 a week. Bringing a lunch from home can save $100 a month. That money can go a long way toward paying off debt. On any credit card or loan, you can make larger payments and any amount you pay over your monthly interest gets credited against your principle, thus reducing the amount of interest you will pay the next month. Keep that cycle up and you will pay off your debts a lot faster.

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Reality Based Budgets for Teens and College Students – Jan. 16^th

Our next Financial Education Workshop will be Reality Based Budgets for Teens and College Students. It is a post college simulation of renting an apartment, buying a car, and developing a spending and savings plan. It is a fun and interactive session for the whole family and really opens the door to discussions about managing money. If this is something you or a member of your family needs, please feel free to join us. These workshops are open to the public.

Reality Based Budgets

6:30pm January 16^th at our Chesbro Main Office Location

5615 Chesbro Ave, San Jose CA 95123

Please RSVP with Gmeyer@meriwest.com.

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Hungry for more information on Money Management? Check out Len Penzo’s Financial Blog. Len provides excellent financial insights with a sense of humor.

Working on your Home?

You have waited a long time. You worked your way through a recession. Perhaps you have watched your home lose value and slowly regain some it back as our economy has shown signs of improvement. The time has come for you to do some work on your house that has been put off too long.

Renovating the bathrooms and the kitchen in your home can give you some good bang for your buck when it comes to increasing the value of your home. How do we pay for it? One of the best ways is to use your home’s equity to finance that improvement. A Home Equity Line of Credit can be your ticket to a new kitchen. You may be able to deduct the interest on your taxes (check with your tax consultant). 

Here at Meriwest Credit Union, lines up to $250,000 have no application fees nor do they have any third party fees like title costs. Also, interest rates are at their lowest point in years, meaning you can save a lot of money in interest charges. Check our Home Equity Line of Credit Page or contact your local Meriwest Credit Union Financial Services Representative for details. Now let's talk about unlicensed contractors.

Beware of Unlicensed Contractors

It is about this time of year when someone with a pickup truck and a smile may knock on your door, mention something about your house that may need work, and they'll offer to do it at a cost that seems almost too good to be true.

Frequently, they'll tell you they were working in the area anyway, which is part of why the job will be so cheap. But it pays to do a bit of research. Here's why:

Liability. Legitimate businesses carry two kinds of insurance that protects both themselves and you, the customer...

• Liability insurance. If the contractor or his employees cause damage to your property, or a neighbor's property, they will generally carry insurance or have posted a bond to ensure that they can make good on any damages. Sure, you can file a lawsuit and maybe win a judgment. But having a judgment and collecting on it are two different things. A licensed contractor will generally have enough insurance coverage to ensure you will be made whole in case of any kind of claim.
• Workers compensation. Unlicensed contractors typically don't provide workers compensation coverage to their workers. Most states require this coverage, which covers any medical costs incurred by workers injured on the job, as well as some disability benefits. If a worker gets injured on the job, and this insurance isn't in place, that worker could sue both the employer and you, the property owner, for damages.

Jail time. It's true: In some jurisdictions, using unlicensed contractors not only jeopardizes your own finances - it's actually a crime.

Scams. Most unlicensed contractors mean to actually do the work. But one common scam goes like this: The scammer will begin work, then asks you for money "to go buy some of the materials they need." Then you give the contractor the money, and you never see them again. Or there may be an injury, for which you as the property owner are expected to provide compensation. The injury could be legit... or it could be part of the scam.

Worse yet, unscrupulous contractors could begin work, tear your roof open, for example, and then demand much more money than agreed upon to close the roof. Had you used a legitimate contractor, you would have recourse to your state licensing boards for unethical work or breaches of contract. Legitimate contractors don't want to lose their license, so they will work very hard to satisfy you as a customer and prevent racking up a track record of complaints.

How to Avoid Them

·        The simplest thing to do is ask for their license number. If they can't give it to you, or claim to be "working under someone else's license," then don't let them touch a thing.

·        Also, ensure the contractor gets a permit for any construction projects or anything that involves digging. Legitimate contractors will normally arrange for the permits themselves.

o       If they ask you to get the permit, consider that a red flag. It may be they are no longer welcome at the permit office - or they don't have the cash to get a permit. Either way, it doesn't bode well. 

·        Ask for references in your area. If the contractor has a good reputation and has provided good value and service to his customers, the contractor will be happy to share his or her references with you. No references? No Job!

·        Don’t forget to check social media like Yelp or traditional rating agencies like the Better Business Bureau. Look for a contractor with good Yelp ratings and no complaints filed at the BBB. That will make your decision a lot easier!

The Bottom Line

Using licensed contractors is a smart move in many ways: It encourages and supports the legitimate, law-abiding businesses in your community. You can generally expect a better quality of work. It encourages employment in your community, as unlicensed contractors are more prone to hire illegal workers. And it protects you against unwanted liability when things don't go as planned. You could be liable if an unlicensed contractor or one of his workers is injured on your property. Licensed, legitimate contractors will have Workman’s Compensation Insurance for him and his crew. In this case, you would not be liable for injuries incurred in the performance of the work on your property. 

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Meriwest Pre-Owned Auto Sale 

November 10-11, 2012

Last Auto Sale of the Year! Sale Hours: Saturday, November 10: 9:00 a.m. - 5:00 p.m. Saturday, November 11: 9:00 a.m. - 5:00 p.m. Location: Meriwest Credit Union 5615 Chesbro Avenue San Jose, CA 95123 Take Advantage of this Event! Rates as low as 1.24% APR offered to qualified members** Over 200 quality pre-owned vehicles Trade-ins welcome Up to 100% financing available on all vehicles for qualified buyers*** Loan officials on-site