Home equity loans are wonderful when home-owners need to do a little updating, fix that leak in the roof, or replace the gutter around the house. They can get you new double-paned vinyl windows, a lovely new deck, fresh paint, new flooring, and much more.
The down side of home equity loans, along with other second-mortgages on your piece of real estate, is that if you are forced to sell in a bad market and you’re underwater, you most likely will not be approved for a short sale. Percy D. Mitchell writes about why,
Second mortgages are also a big stumbling block on short sales, where the borrower sells the home for less than the value of the amount owed. Real-estate agents have complained for months that many of these deals fall through because the second-lien holder isn’t willing to approve the deal, or is requiring more money from the transaction.
With the massive amounts of second mortgage debt on the books of nearly every bank, it’s not surprising they will not cooperate in taking a smaller payoff. However, a little something is better than a lot of nothing which is what a foreclosure would get them.
Think hard before you get a second mortgage because if you end up in trouble with your mortgage, your choices will be much more limited with that second lien hanging over your head.
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