Latest news with #CornerstoneFirstMortgage
CBS News
27-03-2025
- Business
- CBS News
Does a HELOC for debt consolidation make sense now? Here's what to know.
The persistent inflation issues that have been looming and the rising costs of goods and services that have come with it have driven many Americans toward credit cards recently. In fact, the total credit card debt nationwide is now sitting at over $1.2 trillion — a $45 billion jump from just one year earlier. If you're a homeowner and have racked up credit card debt of your own, you might be able to tackle it by tapping your home equity . In many cases, options like home equity lines of credit (HELOCs) offer significantly lower rates than credit cards, allowing you to use your equity to pay off credit card balances with lower monthly payments and fewer long-term interest costs. Still, the strategy isn't right for everyone — or every situation. Are you thinking of using a HELOC to pay off debts right now? Here's when it might make sense (and when it wouldn't). Compare your home equity borrowing options and lock in a top HELOC rate now . From an interest rate standpoint, using a home equity line of credit to consolidate debt can be a smart choice right now, as HELOC rates tend to be quite a bit lower than most other financial products. Credit cards, for instance, are carrying average rates above 22% and personal loan interest rates are averaging over 12% . The typical HELOC, on the other hand, carried about an 8% interest rate in March 2025. "Most people are going to save a substantial amount of money," says Dre Torres, a loan officer at Cornerstone First Mortgage. There are other benefits to consolidating debts with a HELOC , too. For one, you get a longer repayment term compared to other options. For example, most personal loans have very short terms (a few years, at most), and if you don't pay off your credit cards quickly, the debt can easily snowball. "Most people at some time in their adult life end up with a pile of debt that just seems to have appeared and at some point, you have to stop the snowball effect of fighting higher interest loans or credit cards," says Steve Wilbourn, a financial advisor at True North Advisors. "If you are at the point where you are not going to be able to pay the credit card bill, a HELOC can give you more time to spread out the payments and often a much lower interest rate which equals a lower payment." Consolidating your debts will also streamline your payments. Instead of paying several debts down each month, you'll have just a single HELOC payment to make — and often, it will be interest-only payments for the first 10 years of the loan, making them even more manageable. "Any time you are going to pay off debt and roll it into a loan that has one payment, that will put you in a better financial position," Torres says. "It can help with being cash flow positive every month, being able to apply that savings to other debt to pay down, or being able to take that monthly savings and float it into the market so that it becomes an asset to you." Find out how affordable home equity borrowing could be today . Using a HELOC to consolidate debt likely wouldn't be a good idea if your credit score is particularly low, as it would likely mean you'd get a higher interest rate on your HELOC — eating into the potential savings the move would have to offer. It would also not be wise if you don't have much equity in your home. "It may be ill-advised to use a HELOC if it takes all of your home's equity off the table, especially if you haven't owned your home for very long," Wilbourn says. "There is always the chance of your home losing value and you are now upside down on your mortgage." When you're upside down on your mortgage, you owe more than the home is worth. And if you find yourself needing to sell? The proceeds won't be enough to pay off your loan, leaving you to make up the difference out of pocket. Taking out a HELOC to pay off debt is also a bad idea if you don't have the funds to actively pay down the balance, as it could result in more long-term debt. It could also mean higher rates the longer you keep the line open. "Right now, with rates still relatively high and potentially volatile, a variable-rate HELOC can be risky since your payments can rise if rates go up," says Stephan Shipe, a flat-fee financial advisor and owner of Scholar Financial Advising. "It's better suited if you plan to pay it off quickly or if you expect rates to drop. " If your spending habits aren't in check, a HELOC isn't going to be much help either. It could even mean losing your home to foreclosure if you can't make your payments. "It's a major red flag if you are consolidating debt into a HELOC without addressing the root problem that caused the initial build-up in debt," Shipe says. "Without addressing the initial issue, you risk losing your home and also freeing up credit card limits to build up the problem again, creating an endless debt cycle." Debt consolidation isn't your only option if you're dealing with debt. Debt settlement , debt negotiation and other debt relief services can help, too. And if you're not sure what the right move is, talk to a financial professional. They can walk you through all your options, as well as their benefits and costs.
CBS News
13-02-2025
- Business
- CBS News
Here's what to expect during the home equity loan underwriting process
If you need to borrow cash, taking out a home equity loan is one of the most affordable ways to do it. Rates on these loans and home equity lines of credit (HELOCs) tend to be much lower than other financing products, such as credit cards and personal loans, and they can save you significantly in the long run. Just be prepared: The borrowing process is a bit different from other lending products, mostly due to the prime role your home plays, so it's important to understand how that works before tapping into your home's equity. Compare today's home equity rates and find the right option for you. Here's what to expect during the home equity loan underwriting process Are you planning to tap your home equity for cash in the near future? Here's what to expect from the borrowing process. Your home will play a big role The biggest difference with home equity loans when compared to other types of borrowing products is that your house will play a critical role in the process. This is because it will serve as the collateral for the loan — and is what the lender can seize if you fail to make your payments. Your home (and its market value) will also influence what you can borrow with your loan. To determine this, most lenders will order an appraisal. The appraiser will assign the home a value based on its age, condition, features, and local home sales data, and that number — minus what you owe on your main mortgage loan — will tell lenders how much equity you have and, therefore, how much you have to borrow from. "One of the biggest struggles in the industry is that people come in having an idea of how much money they want but they have no idea how much equity they have in their home," says Dre Torres, a loan officer at Cornerstone First Mortgage. "It can make things difficult when they come in wanting more cash than they have available." Typically, an appraisal is an in-person evaluation of the home, but that's not always the case. Some lenders may take a more digital, data-based approach instead. These are sometimes referred to as "automated valuation models" or AVMs. "We use automated valuation models to estimate your home's value, and if the AVM's confidence score is strong, a full appraisal may not be necessary," says Scott Bridges, chief consumer direct lending production officer at Pennymac. "This saves you both time and money." In some cases, you may not need an appraisal at all. For example, if you only closed on your loan a year ago and you still have a very recent appraisal, you may be able to use that instead. Still, "90% to 95% of the time for home equity loans, you will need an appraisal," Torres says. Learn how affordable home equity borrowing could be now. Your finances will be scrutinized You can also expect your finances to be scrutinized pretty carefully, largely because home equity loans are riskier than traditional mortgages. They are an extra monthly payment in addition to your normal mortgage and bills, and as such, lenders want to ensure you can handle the additional financial pressure that puts on your household. One thing they'll look at is your credit score. And while the exact minimums you'll need to meet depend on the lender you choose, you can usually expect to need a 650 score or higher, Torres says. "Higher scores — 700 plus — will get more favorable financing options," Torres says. Lenders will also look at other financial factors, llke your other debts, your income and your credit history. Your debt-to-income ratio (DTI), or how much of your income your debt payments take up, will also play a role. You can calculate your DTI by totaling up your total minimum payments across all your debts — including the new home equity payment — and then dividing by your monthly income. Most lenders want a DTI of 43% or lower, though some may allow for higher DTIs under certain circumstances. Keep in mind, though: "A lower DTI will open the borrower up to more programs and better rates within those programs," says Kevin Leibowitz, a mortgage broker with Grayton Mortgage in Brooklyn. You'll want to come prepared Before you apply for a home equity loan, Bridges says, "It's important to assess your financial health." "First, determine how much you need to borrow and what monthly payment you'd be comfortable with," Bridges says. "Second, know your credit score and take steps to improve it if necessary. The better your credit score the more loan options are available to you." You can improve your credit score by reducing your debts, paying your bills on time and disputing any errors on your credit report. Not opening any new lines of credit in the months leading up to your application can also help. Beyond this prep, you can also gather up the documentation you'll need for the loan. As with your first mortgage, you'll need things like your pay stubs, bank statements, and W-2 forms. And "if the borrower's profile is more complex, then tax returns might be required," Leibowitz says. If you're on Social Security, you'll also need your award letter, or if you're receiving funds from a pension or IRA, you'll need recent statements from those accounts as well. The bottom line If you're considering a home equity loan, reach out to a lender to get more information on what qualifications you'll need to meet and what it may mean for your finances. They can also help you understand what terms and interest rate you might qualify for and how that fits into your budget. You should also compare several lenders before deciding what company to go with. Different lenders offer different programs, rates, fees, and terms, so shopping around can ensure you get the best loan for your needs.
