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Things You Should Know Before Buying A Home
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Things You Should Know Before Buying A Home

One of the most exciting things in life, if you are fortunate enough to be able to afford to do so, is buying a home. It is the American dream for millions and is one of the most rewarding experiences you will go through. If you do not understand what you are getting yourself into though that dream can quickly become a nightmare and financial stress. Back in 2007/08 millions of US property buyers lost their homes due to not understanding the home equity loans that they took out so they could buy a property. In this article, I will attempt to provide you with everything you should know so that you keep away from future financial stress and do not have any problems.

Just like insurance policies, loans have very complex terms that they use to their advantage. If you have limited knowledge of how finance works it can be extremely difficult to fully understand the terms of the home equity loan. There are many words and phrases that you probably have not encountered before. It is vital that you do not sign any paperwork and agree to a contract without first fully understanding it as that is what gets many people into trouble.

How Home Equity Loans Work

If you are one of the very few fortunate people that have managed to save enough cash or have rich parents willing to provide you with the money to buy the property outright, you will not require a home equity loan. However, most people will need to take one out in order to fund the shortfall of the amount of money that has not been able to save.

A home equity loan is an amount that you borrow minus the deposit that you make of the total value of the property. Most finance companies will require at least a 10% deposit to be made of the total value of the property before they will lend you the money.

The loan that you take out will be secured against the property so if you do not make the repayments set out in the contract, the finance company are legally allowed to repossess the property. They are then allowed to sell the property to recover the money lent and if that does not cover the amount owed they will take legal action against you to recover the remaining amount.

Advantages Of Home Equity Loans

The main advantage of home equity loans over traditional finance is that they have a lower interest rate. What this means is that the amount that you pay back is less than it would be through other finance options. Therefore you can afford more expensive housing like a studio apartment in the city center or larger house in the outskirt.

Disadvantages Of Home Equity Loans

Most people do not consider the risks when taking out a home equity loan. The biggest risk and disadvantage is that most come with a special introductory period of between 3 to 5 years. Once this period is up the amount in repayments can shoot up dramatically depending on a number of factors but mainly down to what rate the interest rate is set by the FED at the time of renewal. This is where the huge risks are involved as you could see your repayments, double or even treble depending on the current economic times of the country.


Home equity loans are an essential tool if you want to buy a property but it is vital that you make sure you do not stretch yourself to the maximum limit. Always leave plenty of room to be able to afford repayments as once the introductory period is over, you may find yourself needed to pay back a lot more than you originally thought.

For lots of ideas on how to make your house fit your lifestyle, head on over to LivingImpressive.com.
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