How to Do an Open End Loan for a House
Open-end loan is another name for revolving loan. The most common type of open-end loan is the credit card. The loan is structured so that a consumer can borrow an advance off the loan, repay part of all of the advance, and re-borrow the money again. A revolving first mortgage is the least common, but revolving second mortgages, also called Home Equity Lines of Credit (HELOCs), are quite common.
Other People Are Reading
Instructions
-
-
1
Pull a copy of your credit report. You'll want to have good to excellent credit before applying for any home loan. See Resources for a free copy of your credit report. You should also pay for your FICO score--a three digit number from 300 to 850. An excellent credit score is above 720 while a poor score is below 600.
-
2
Determine the reason for the open-ended loan. Open-ended loans are often used for home improvements and for things that need periodic payments, such as tuiton. However, open-ended loans are harder to repay. They're best used as short-term solutions.
-
-
3
Research lenders based on your credit score. If you have excellent credit, consider banks, credit unions and brokers. These lenders often have the most competitive rates. However, if you have less-than-perfect credit, you'll need to research finance companies as well, such as CitiFinancial and Wells Fargo Financial.
-
4
Make sure you have enough equity in your home to do an open-ended loan. Also, lenders use a loan to value (LTV) ratio when determining eligibility. This means that simply having equity in your house is not enough. To figure your LTV, divide your current mortgage balance (or the proposed mortgage) by the value of the house. Most lenders will not finance above 95 percent LTV.
-
5
Compare all loan offers side-by-side. Make sure that the terms on the loan you choose--rate, term, variable or fixed--meet your financial goals. Consider paying a bit more up front--often called "discount points"--to lower your total rate.
-
1
