No Equity Home Loan - Is It A Good Option?

For many cash-strapped homeowners, a no equity home loan sounds pretty inviting. They may be facing a situation in which they need money to fix the house or some other hardship and the home equity option seems like the logical choice. But is it really your best bet? The answers may surprise you.

There is a world of difference between getting a regular home equity loan than getting a no equity home loan. The major one being the fact that it is one thing to borrow funds against your equity, but financing money over and above its value is another. There are other facts to consider as well.

- Higher APR - A no equity home loan can easily be 5% higher than a standard loan, even more in some cases. Can you afford that?

- PMI Required - This type of home loan will require you to have PMI or private mortgage insurance. You'll need to check with your lending company to find out how much this will add to the cost of the loan.

- Taxes - Currently, if you take out a no equity home loan the amount that is above your homes value is not tax deductible. This can create a serious tax liability if you are not prepared.

- Selling Your Home - If you need to sell your home and you have borrowed more than it's current value you are looking at a monster of a problem. It can easily lead to you filing for bankruptcy and losing everything.

These are just a few of the things you need to keep in mind before signing a no equity home loan contract. For some, it may be a good option, but for most families it is not.