| 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 am considering taking out a loan on my house for improvements to it (i.e.
building a garage). I do not yet have a significant amount of equity in my
home. I have seen some information on the web concerning HUDs Title 1 loans
which allow for loans up to $25k without significant equity restrictions. I
know there are also HELs out there that allow 100%-125% loans, but with
higher interest rates. I would need to borrow ~100% of my equity. A few
questions: |
| (2) The total of each homes fair market value (FMV) reduced (but not below
zero) by the amount of its home acquisition debt and grandfathered debt.
Determine the FMV and the outstanding home acquisition and grandfathered
debt for each home on the date that the last debt was secured by the home. |
| 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. |
