Before you make any financial mistakes, let’s take a look inside the world of Florida home equity loans…

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Late payments on Florida home equity loans climbed to a one and a half-year high in the opening quarter of this year, while delinquencies on credit card bills fell, painting a clouded picture of how people are managing their debt. (more…)

Interested in tapping the equity in your property? But curious what options there are, aside from a Florida home equity loan? Let’s explore them… (more…)

Are you considering a cash-out Florida mortgage refinance? Comparing it with the option of a home equity line of credit (HELOC)? (more…)

If you’re a typical American consumer, you have too much high-interest debt - and it’s costing a bundle to service it.

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Many South Florida residents are eating out less and springing for fewer big purchases like a new car or a vacation, the Miami Herald reports.

It’s not just because of the increasing cost of living, either.

Economists talk about new consciousness among consumers who relied heavily upon their houses for their worth and are now watching the Florida real estate market slow way down.

And as the South Florida housing market slides, the new consumer psychology is rippling through the region’s economy - and is already hurting South Florida’s biggest companies.

Companies are saying they’re starting to see less business because of the housing slowdown. And it’s not just the obvious businesses within the housing industry - like real estate, Florida mortgage or construction companies - which have already seen clear hits.

Miami-based home builder Lennar, for example, reported last week that its first-quarter profit tumbled 73 percent on softness in the housing market made worse by problems with subprime lenders. Lennar warned it doesn’t expect to meet its 2007 earnings guidance.

But companies you wouldn’t automatically associate with housing are also pointing to the Florida real estate slowdown as a big culprit for less earnings, in such industries as varied as car dealerships, cruise lines and shipping companies.

In February, although prices remained relatively flat, sales of single-family homes declined by 31 percent in Miami-Dade County and 20 percent in Broward County compared to a year ago, Florida Association of Realtors data indicates.

The condo numbers were worse, and inventory has nearly doubled. And there’s little doubt that all those for-sale signs may wreak havoc with consumer confidence (psychology) as the housing market slows.

The boom saw many homeowners taking out sizable adjustable rate mortgages or simply tapping home equity out of their properties. Now, with possible Florida home loan rate increases and the equity well drying up, people are more worried and therefore more cost-conscious.

As fears of Florida mortgage problems escalate, the confidence among Floridians dropped last month, according to data released by the University of Florida last week. The index, last month at 92, declined to 86.

“Housing is an increasing problem,” said survey director Chris McCarty. “It’s very clear that people were using their home equity to fuel spending, so I don’t think this should be that much of a surprise,” said McCarty, citing the rampant speculative buying and use of exotic loans.

Economists see the housing slowdown working its way through the economy in this fashion: First, home prices slow down, then the number of people who are extracting equity from their homes also starts to taper off. That pool of money shrinking leads to fewer purchases of big-ticket items.

Last year, 16 percent of the new car purchases in the Sunshine State were made with a Florida home equity loan, said Art Spinella, the president of Oregon-based market research firm CNW Research. That compares to 9 percent in 2000.

Follow the link to continue reading in the Miami Herald …

In the market for a Florida home equity loan? Understand what it takes to be approved for one?

The lending institution considers your creditworthiness when deciding whether to extend a loan and how much of an interest rate you will pay. This factor boils down to three things:

1. Credit history
2. Income
3. Loan-to-value ratio

Credit history
Credit bureaus collect information about the amount of debt you have and whether you pay your bills on time. They compile this information into a file called a credit report, and then boil all this down to a number between about 300 and 850. That number is your credit score.

Sometimes it’s called a FICO score, after Fair Isaac Corp., the company that pioneered credit scoring.

This article describes how to obtain your credit report and understand it. You can buy your FICO score directly from Fair Isaac. Federal law entitles you to one free credit report per year. The report and the score may be bundled together or offered separately.

Income
Florida home loan lenders want to know how much you make and how long you’ve been at your job, as well as how long you have been working in your particular field. They will look at your total debt-to-income ratio: How much of your monthly income goes toward paying the mortgage, credit card bills, car payment and other obligations, including the payments on the equity debt for which you are applying. Most lenders want to keep that ratio under 36 percent.Be prepared to show your lender proofs of income, such as W-2s, tax returns and other earnings statements, or get ready to be turned down or pay a higher Florida mortgage rate.

Loan to value ratio, or LTV
This is the ratio between what you owe on your house and what it’s worth. If your house is worth $100,000 and you still owe $80,000, your loan-to-value ratio is 80 percent, because $80,000 is 80 percent of $100,000. When you bought the house, calculating the LTV was straightforward: the Florida mortgage amount divided by the home’s price.

It’s more complex when you get a home equity product, because the home’s value probably has changed since you bought it. The lender will get an appraisal of the home’s current fair market value. Then it will add the current mortgage balance to the size of the equity loan or credit line that you want, and divide that by the home’s current value. That results in the new LTV ratio.

Traditionally, equity lenders want to keep your total loan-to-value at 80 percent or less.

But there are lenders that will go higher - even, in some cases, for more than the value of the home. These are called high loan-to-value (high LTV) loans. Expect to pay a higher rate on such Florida home loans. You’ll only get that loan or credit line, though, if you earn enough to afford the monthly payments.

SOURCE: Bankrate.com

There’s no debating the fact that this is a slow Florida housing market. Homes values are not increasing as they were just a few years ago.

Such a lack of price appreciation comes into play for those thinking about selling their property - and those considering a Florida home equity loan.

In general, home equity loans are considered “smart debt.” How come? Because interest rates are lower than they are for most other kinds of consumer credit; they may also be tax-deductible. However, if you borrow the maximum amount and a soft housing market significantly reduces the value of your home, you could end up owing more than your home is worth.

Therefore, you need to be cautious when thinking about the pros/cons of these Florida home loans. Consider both long and short-term effects.

A housing market on the decline could tip the scales in favor of a fixed-rate home equity loan rather than a home equity line of credit, which generally has a variable rate. The variable rate will rise with other factors such as the prime rate, which will increase the cost of your credit over time. Moreover, with a loan rather than a line of credit, you won’t be tempted to keep tapping into that credit and possibly get in over your head.

Being conservative in taking out any loans - using the money for safe investments such as home renovations or your children’s college education - becomes even more important when the housing market is slowing.

A slow housing market is not a good time to borrow more than 75 percent to 80 percent of your home’s equity (its appraised value minus what you owe on your Florida mortgage). A high loan-to-value ratio puts you at more risk if a job transfer or other personal situation forces you to sell the house: in a slower housing market, you might not get a high enough price to pay off both the mortgage and the home equity loan.

Just keep all these issues in mind. As long as your cautious about the amount you take out, this resource could still deliver the dividends you’re looking for.

Are you trying to decide between a Florida home equity loan or a line of credit? Consider your goals, your payment schedule, your spending habits and your risk tolerance.

Remember that a home equity loan is best used for a one-time goal for which payment will be due in full and which has long-lasting benefits. For instance, a Florida home loan of this nature makes sense if you want to fund a specific home improvement project that boosts the equity in your house or if you want to pay off high interest credit card debt in one fell swoop.

What’s more, a these Florida home loans make sense if you like the security of a locked-in rate, knowing exactly how much you’ll owe every month.

A HELOC, by contrast, gives you more repayment flexibility and lets you borrow only the amount you need when you need it. Through it, you’re only paying interest on the amount you’ve taken, whereas with a loan, you pay interest on the money whether you’re using it or not.

Comparing the options

Therefore, if you’re embarking on a multiyear home improvement project for which you’ll have to write checks at varying times during that period, a HELOC might be best. (But carefully read the terms of your agreement. Some lenders may require you use a certain amount of credit by a given time, or that you withdraw a minimum every time you make a withdrawal.)

Also, because variable-rate HELOCs are tied to the prime rate, they can be more risky when rates are rising.

HELOCs are also good for short-term financing needs that arise unexpectedly, especially if you know you’ll have the money in hand to cover an expense a few months after incurring it, perhaps through the sale of property or stocks.

A line of credit can be a smart choice for people who have already paid off their first Florida home mortgage and want ready access to cash if the need arises.

So, should you tap your home equity?

As attractive as a HEL or HELOC may be, ask yourself if you should be tapping into your home equity at all - keep in mind you put your home at risk of foreclosure if you can’t make required payments. And consider whether there are less expensive ways to borrow money.

For instance, it may make more sense to do a cash-out refinancing, which increases your mortgage, potentially lowers your rate and pays you the difference between your old and new mortgage in a lump sum.

Second, if your reason for taking out a Florida mortgage loan or line of credit is to help pay for years of living above your means and you haven’t taken steps to rein in your spending, you shouldn’t put your home at risk.

Lastly, if you’re considering a HEL or HELOC for the tax break, think carefully. The interest deduction is not a dollar-for-dollar reduction of your taxes, just a percentage. Plus, if your adjusted gross income is high, the phase-out for itemized deductions may kick in, preventing you from taking a full deduction, if any at all.

Is it possible for a Florida home equity loan to be considered “unsecured?” This would seem unlikely, based on the home itself essentially securing such a loan, but your credit history may occasionally list it as such.

Does this matter? Is it good idea - or a possibility - to request a change of type to make this into a second mortgage? Don Taylor, a certified financial analyst, responded to these questions …

If the home equity loan, combined with any outstanding mortgage loan balance, is for an amount more than the property is worth, then a portion of the loan is unsecured. Because you may have used the proceeds from the home equity loan to pay off your Florida mortgage, it’s possible that is the reason that the loan was originally listed in your credit report as unsecured.

You should have a good enough handle on what your home was worth when you took out the home equity loan to know whether or not that was the case.

Can you just make this int a second mortgage? No. A second mortgage is called that because it is second in line to the first mortgage if the property goes into foreclosure. If you no longer have a first mortgage, then the home equity loan is first in line and technically it isn’t a second mortgage.

Taylor recommends taking the time to get this corrected on your credit report. Try talking to the lender first, rather than going through the dispute process under the Fair Credit Reporting Act, or FCRA. If you can’t come to terms with your lender, then you can dispute the account.

Why is this suggested? Becayse the mix of credit on your credit report is one of five components in your credit score. Granted, the type of credit used is only 10 percent of your credit score, but the credit score looks at the ratio of credit used versus credit available and having the home equity loan listed as unsecured credit might unfavorably impact that ratio.

This would then affect any future Florida home loans you applied for.