A great benefit of owning a home is that it can be used to purchase a second home that you can then use to start your own business. In some cases, a seller will allow you to finance a portion of the purchase price with home equity loan (view it here). This is sometimes referred to as a home equity line of credit. If you decide to acquire equity in your primary residence instead, it’s a good idea to borrow some money in the secondary market to pay off the remainder of the loan before you resell your primary residence.

Equity Lines of Credit

In the United States, there are typically two types of equity lines of credit:

Defaulted loans

Most of the loans in this category are not considered to be up to your normal standards of loan quality and are therefore rejected by your credit bureau or placed on an Adverse Credit Report. A loan with an unpaid balance (not attached to a home) can be declined if you receive a notice from your credit bureau that the loan has been placed on a “Bad Credit” report. However, the lender has no legal obligation to continue the loan with the unpaid balance. As long as you continue to pay your interest on the loan, it should be eligible for future approval. You should also take advantage of mortgage refinances for additional safety.

Home equity line of credit

If you have lived in your primary residence for a minimum of 12 months, your lender may allow you to use the equity in your home to buy a home. You’ll need to continue making the minimum payments on your home, although these are lower than if you were repaying the loans. This provides additional protection since if you don’t take the extra steps necessary to pay down the home equity, you may end up losing the equity in your home. A home equity line of credit can be used to buy a home, either a new home, a resale home or a rented apartment. Home equity lines of credit usually come in the form of a Home Equity Conversion Mortgage.

Repayment Plans

When you obtain a home loan and repay your loan in full, you’ll be required to provide your lender with information about all of your payments (including mortgage payments and taxes) for the next 6 months or year. The amount you are required to repay will be larger than the amount you borrowed since the bank will be earning an average interest rate that includes these additional expenses. If your lender does not agree with your income or credit history, your credit will be negatively affected and you may have to delay your loan approval. If you have trouble making your scheduled mortgage payment, or just don’t think you can make it, ask your lender to have a defaulted loan removed from your credit report and then ask for a reduced payment or an adjustment to your principal and interest.