When should I get a home equity loan?
December 5, 2011 6:46 AM Subscribe
With someone with recuperating credit, how long should I wait to get a home equity loan?
Recently, my parents helped me purchase a co-op apartment 100% down (I know, they're awesome). I've been paying them back in monthly increments, but I'd like to give them a large chunk of cash so they can help my little brother with tuition.
A home equity loan seems like the best option, as my credit is not great (690 range). I got debt-free three years ago, but I haven't been using a credit card or developing any new credit history. I just got a low-credit-limit card two months ago.
The question is, how long should I wait to get a home equity loan? Will a year of good credit behavior be enough to raise my score? I'd like to have a manageable monthly payment on the loan, but I'd also like to help my parents as soon as possible.
Also, any general advice on home equity loans is welcome for a first timer.
Recently, my parents helped me purchase a co-op apartment 100% down (I know, they're awesome). I've been paying them back in monthly increments, but I'd like to give them a large chunk of cash so they can help my little brother with tuition.
A home equity loan seems like the best option, as my credit is not great (690 range). I got debt-free three years ago, but I haven't been using a credit card or developing any new credit history. I just got a low-credit-limit card two months ago.
The question is, how long should I wait to get a home equity loan? Will a year of good credit behavior be enough to raise my score? I'd like to have a manageable monthly payment on the loan, but I'd also like to help my parents as soon as possible.
Also, any general advice on home equity loans is welcome for a first timer.
what about skipping all that and helping your brother with the tuition directly? Not sure why you'd want to put yourself in a position where you owe money to a bank if you essentially have (I'm presuming) a no or low interest loan from your parents.
I'd continue to pay the parents and put some money towards your brother's tuition.
posted by eatcake at 7:10 AM on December 5, 2011
I'd continue to pay the parents and put some money towards your brother's tuition.
posted by eatcake at 7:10 AM on December 5, 2011
I'm with eatcake: If the cash flow situation allows, the interest would be much better given to your parents than to a bank.
Otherwise, if they need the money now, sit down with your parents and your little brother and run through a number of interest-paying scenarios: A variable rate home equity loan right now is probably running 5% or so, what are the various other options for your brother or parents carrying that debt, how well do those options protect against various economic issues (higher interest rates, bankruptcy of one of the parties, job losses, etc) weighed against the possibility of those events.
posted by straw at 7:18 AM on December 5, 2011 [1 favorite]
Otherwise, if they need the money now, sit down with your parents and your little brother and run through a number of interest-paying scenarios: A variable rate home equity loan right now is probably running 5% or so, what are the various other options for your brother or parents carrying that debt, how well do those options protect against various economic issues (higher interest rates, bankruptcy of one of the parties, job losses, etc) weighed against the possibility of those events.
posted by straw at 7:18 AM on December 5, 2011 [1 favorite]
Response by poster: To give a more detailed picture, my cash flow is very low. I live in NYC, and my job does not pay very well. I'm able to afford the monthly payment and other small costs of living, but not much else. Straw, since I'm a financial novice, what other options besides a home equity loan would be available to me? I'm not interested in a home equity line of credit.
posted by marcin_zissou at 7:23 AM on December 5, 2011
posted by marcin_zissou at 7:23 AM on December 5, 2011
If you are only able to pay for the payment, presumably with minimal/no interest, with your current income, how do you expect to pay back a larger payment, with interest, including the fees necessary to initiate such a loan?
Concur with other commenters - this sounds like a horrible idea. Further, you need to have a discussion with your family about this, rather than unilaterally screwing yourself over for something that may, in the end, not even be necessary.
Keep in mind that a home equity loan turns what is essentially an unsecured loan from your parents into a secured loan from a bank. That means that if you can't pay back your loan, you can lose your apartment. I think your parents would like to be included in your financial decisions given that they might be a bit upset at that outcome.
posted by saeculorum at 7:32 AM on December 5, 2011 [2 favorites]
Concur with other commenters - this sounds like a horrible idea. Further, you need to have a discussion with your family about this, rather than unilaterally screwing yourself over for something that may, in the end, not even be necessary.
Keep in mind that a home equity loan turns what is essentially an unsecured loan from your parents into a secured loan from a bank. That means that if you can't pay back your loan, you can lose your apartment. I think your parents would like to be included in your financial decisions given that they might be a bit upset at that outcome.
posted by saeculorum at 7:32 AM on December 5, 2011 [2 favorites]
Response by poster: Let me clarify. I'd like to take out a partial loan (about 20% of the total equity) over four years.
This would allow for a lower payment than I am paying my parents, while giving them a good chunk of the money they loaned me back. I've had a conversation with my parents about this, and given the amount of tuition my brother is paying, they need this help.
I appreciate that you're concerned, though. I do want to be careful on how much I get involved with bank debt.
posted by marcin_zissou at 7:58 AM on December 5, 2011
This would allow for a lower payment than I am paying my parents, while giving them a good chunk of the money they loaned me back. I've had a conversation with my parents about this, and given the amount of tuition my brother is paying, they need this help.
I appreciate that you're concerned, though. I do want to be careful on how much I get involved with bank debt.
posted by marcin_zissou at 7:58 AM on December 5, 2011
So I guess I'm not clear on how "This would allow for a lower payment than I am paying my parents...": Are you saying the bank will give you a lower interest rate than your parents are giving you? If so, the best thing you can do for your parents is to continue to pay them.
I think we're asking you to rephrase the question as: Pooling your, your parents', and your brother's income and assets, how can you all pay the least taxes and interest to outside parties while providing for your brother's schooling?
And we don't have enough information to answer that question: What would that lump sum of payback to your parents do to impact whatever financial aid your brother might be eligible for? How quickly does your brother need whatever money he needs to pay for tuition? Is there some deal where he may be able to borrow it more cheaply than you (I haven't looked at student loans, but there may be some trade-offs there)?
And if it is worth you taking a mortgage, then do you want to do it as a home equity loan (often sold to you as flexible and short-term, with immediately variable rates) or as a mortgage (long-term, less flexible, but can be fixed rates or restrictions on variable rates)?
Because as you've phrased it right now, the best thing you can do for your parents is to continue to pay them, unless they need to come up with cash short-term. And if so, it may make more financial sense for them to borrow the money (if, for instance, they have equity in their home and better credit ratings than you).
posted by straw at 11:01 AM on December 5, 2011
I think we're asking you to rephrase the question as: Pooling your, your parents', and your brother's income and assets, how can you all pay the least taxes and interest to outside parties while providing for your brother's schooling?
And we don't have enough information to answer that question: What would that lump sum of payback to your parents do to impact whatever financial aid your brother might be eligible for? How quickly does your brother need whatever money he needs to pay for tuition? Is there some deal where he may be able to borrow it more cheaply than you (I haven't looked at student loans, but there may be some trade-offs there)?
And if it is worth you taking a mortgage, then do you want to do it as a home equity loan (often sold to you as flexible and short-term, with immediately variable rates) or as a mortgage (long-term, less flexible, but can be fixed rates or restrictions on variable rates)?
Because as you've phrased it right now, the best thing you can do for your parents is to continue to pay them, unless they need to come up with cash short-term. And if so, it may make more financial sense for them to borrow the money (if, for instance, they have equity in their home and better credit ratings than you).
posted by straw at 11:01 AM on December 5, 2011
This thread is closed to new comments.
posted by H. Roark at 6:54 AM on December 5, 2011