How to Avoid Negative Home Equity
A few years ago, to purchase a new house a person has to make a down payment of at least 20% of its value. But, present situation is quite different. It has become for a person to purchase a house with little or no money down payment.
The present minimum amount of down payment has gone down to as low as 5%. This has opened up the opportunity to own a house to more number of people. But, it has created a lot of problems to many more people.
But, presently in the United States, the housing industry is facing a huge down trend. By March 2008, home equity held by house owners in the country has gone down below 50%. This has happened for the first time since 1945. This has made obtaining a negative home equity loan to be nearly impossible.
Therefore, everybody should take necessary precaution to avoid the situation of negative home equity. A few suggestions are being given to help you in your efforts.
Presently, nine million house owners in the United States have no equity in their home. Sizeable numbers of these households are actually having negative home equity which means that they owe more mortgage debt than the present worth of their house.
To avoid such a situation, people should look for some warning signals so that they could take up some corrective action to avoid such a situation.
They are:
- Dependence on home equity loan to pay off ordinary household expenses.
- Not taking up routine home maintenance so that debt incurred in the purchase of consumer goods could be paid off.
- Using the loan amount to pay off credit card dues, or any other dues which has no relation with the house.
A person could still consider taking a home equity loan a good option even in the present situation of down turn in the housing industry.
But, it would be prudent to use the loan amount for such expenses that would actually add value to the property. One should avoid taking a home equity loan to pay for a vacation, or to buy a new car, because such an action would take value out of the home without replacing anything.
On the other hand, using such funds add an extras room or repair the bathroom would be more prudent because so an action would actually add to your home equity and would improve your overall financial situation.
To avoid such a situation, one should consult an appraiser before taking up any project using home equity loan. Appraisers would know what kind of home improvements would add value and you should take those projects to avoid negative equity for your home.
You might have to spend a couple of hundreds of dollars to get their advice but it would lead to the ultimate saving of thousands of dollars in home equity.
