If it were possible for everyone, nobody would want to take risks such as taking a loan against their houses. Lenders sometimes get a loan against their houses. This releases an enormous amount of cash to help their financial situation. And these financial situations are too blind to see that you do not have enough cash to get things done. What a home loan against your house is, documents you would need, etc are all-inclusive in this article.
What is a loan against your house?
The loan against your house is the type of loan which allows you to borrow money against your house. They usually see this as equity.
Equity is what you have when you subtract the value of your house from the borrowing you have against it.
Homeowners who need an enormous amount of money take a loan against their house. This kind of loan gives them more cash than they could get with a personal loan.
Because of the enormous amount of loan it attracts, your repayment term may be longer than other loan repayment terms. It could be from 5 years to 20 years.
What are the documents that I could need to get a loan against my house?
Deed (proof of ownership)
The Deed is a legal proof which shows that you are the rightful owner of your house. Besides that, it proves that you may transfer ownership to the lender should you default on the loan. It contains information such as; book numbers, the lot and parcel.
In the situation where the house you want to loan against is still on mortgage. Show the lender a copy of the most recent mortgage statement. This proves the total loan amount, balance and monthly payments. When you attach an appraisal, the lenders will know how much equity they can take as collateral.
Note: A mortgage is a type of loan you take to buy a property. And you must promise the lender a collateral if you cannot pay back the loan.
Homeowners insurance declarations
The homeowners insurance declaration states the policy number and duration, property and liability coverage amounts. It also shows the monthly or annual premium and the name of any lender. Show the lender a copy of your homeowners declaration page. The proof of insurance becomes very important in this process. It helps the lenders to be sure that they can recover any unpaid part of the loan. This is because the value of the home can decrease because of damage from natural disasters or other occurrences.
Appraisal confirms value
You can have an appraisal that confirms the value of the house you want to loan against. Having it in your application will enable the lender to have a preliminary idea of what your house is worth. Your lender could also perform an appraisal to confirm the value of the property. However, it is advisable to have your own appraisal forehand in case your lender’s evaluation seems incorrect.
What are the conditions for a loan against my house?
In order to get a loan against your house, there are some conditions you must meet. Weigh these conditions before taking a loan against your house in South Africa.
What are the pros and cons of loans against your house?
There are always two sides to a coin. Things that have pros usually have cons. Getting a loan against your house is not in exception to this. You would clearly understand the pros and cons of this form of loan.
The following are the pros and cons of getting a loan against your house:
The pros are:
- Because you pay interest on the loan, you can claim a tax deduction for it. This can be possible if you use the loan to buy, build or improve your house
- Because you loan against your house, you’ll probably pay less interest than you would on a personal loan
- If you have enough equity in your house, you can borrow a good sum of money to cover it. Sometimes, lending institutions could cover your closing costs as part of the loan agreement
The cons are:
- If you cannot pay back the home loan, you therefore risk losing your home to foreclosure
- With loans against your house, you must pay closing costs, unlike the personal loan
- You might not have extra cash to make investments. This is because you’ll be repaying the loan and interest instalmentally
In South Africa, there are financial institutions that can offer you a home loan against your house. Ensure you go through all the options of these institutions thoroughly. Find out the best option for you. Besides finding your best option, ensure you repay the loan according to the terms they give you. This will help to strengthen your credit score and enable you to access future credit. Be sure to read about the best way to increase your chances of getting a home loan before applying.