| This is a very popular technique to avoid PMI. I had 10% down on
my loan, and took out a home equity to pay donw my mortgage below
the 80% level. I know of folks who have arranged for a home
equity loan to be part of the closing to avoid PMI. That is
here in Minneasota...I have no idea if it varies by state. I
would assume, however, that you still need to be able to qualify
with the additional payments. This would seem to work best for
folks who are buying less than the maximum house they are allowed
to own. |
| It is incumbent upon a debtor to keep in contact with their lender and to
make sure payments remain current on home and car notes. Otherwise, the
lender may well take action to foreclose/repossess once the BK case is
closed. |
| The interest on non acquisition debt, like home equity
loans, second mortgages, etc, are only deductible up to
$100,0000 (of debt). So if you have a home worth $500,000
and you take out a $200,000 home equity debt, only the
interest on $100,000 is deductible. |
|
There is another bad reason for taking this type of loan besides the high
interest rate and the risk of losing your home: If the loan is in excess of
the homes fair market value and is not used to buy, build, or substantially
improve your home, it is likely that you will not be able to deduct the loan
as home interest. |
|
I have a client who wants to purchase rental property using
his home equity. The loan will be secured by his personal
residence. I am aware of the $100,000 limit on home equity
loans. I have read that the interest tracing rules do not
apply to home equity loans. The rental property will be
rented to his corporation. |
