Should I Use My Home Equity to Fund New Business?

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Q & A with Dottie Herman
 
QUESTION: I recently invested in a new business and needed to use some of my home equity line for the initial down payment. I anticipate being able to put the money back relatively quickly. If there was an issue is there a way to get another equity line? I have a lot of equity in my home, or do I need to refinance to pull money out?
 
ANSWER: You would be able to get another line of credit only if you meet the guidelines for qualifying. If the new business is your only source of income, that may be a challenge. Most lenders require 2 years of proof of income from a business to use the income to qualify. Of course this is only an issue if your current line is not available.
 
QUESTION: I'm looking to sell my home. Should I spend money on landscaping to increase curb appeal? Or invest the money elsewhere?
 
ANSWER: The general rule is that you should keep up with your neighbors and maybe just a bit more. In some places that means professional landscaping and in others just some upkeep and attention to detail.
 
QUESTION: My husband and I are looking to buy our first apartment. We were recently turned down for a mortgage. We both have great jobs and make decent salaries and we didn't think we were asking for something we are unable to afford. Are there certain things that we need to know about applying for a loan in regards to an amount based on income earned? How do we come up with the right number?
 
ANSWER: Lenders utilize a calculation known as the debt to income ratio. Most lenders will use 45% of your gross monthly income as the maximum amount of debt that you can have for all of your debt including your mortgage, real estate taxes, insurance and maintenance, credit cards, student loans, car payments etc. For example if you earn 10,000.00 per month gross income the maximum you can spend on your debt is 4,500.00 per month. A reputable lender can pre-approve for a mortgage based on your income, assets and credit so you know where you stand before you go looking for another home. The old rule of thumb was to take your gross annual income and multiply by 4, and that is a conservative way to figure out as well.

QUESTION: Does it make sense to re-finance now? We bought in 2009 and our rate is around 6.25% for a 30 year fixed mortgage. Our loan is about 500K.
 
ANSWER: Rates are still favorable for re-financing.  You also may want to look at a shorter term, say a 20 year fixed rate, or even a 15 year if you are interested in paying your loan off quicker. It's probably worth looking into.

QUESTION: If I declare bankruptcy for my business does it affect my personal credit and ability to finance a home in the future?
 
ANSWER: Bankruptcy is generally an issue no matter how you slice it. If it's unavoidable, then lenders may want to see a few years between the bankruptcy and extending mortgage credit to you. FHA is most lenient with a 2 year waiting period, conventional loans are a minimum of 4 years, and several jumbo products can require up to 7 years.