Starting a business can be an exciting endeavor, but it does have its downfalls. One of the most stressful parts of starting up a business is figuring out how to finance it all. After all, it takes money to make money, and entrepreneurs typically have ideas but little in the way of tangible assets that they can use as collateral to get loans from banks or other traditional lenders. If you need startup capital but don’t have many assets or the type of income lenders are looking for, you may want to take advantage of your home’s equity instead of a home equity loan.
The Benefits of Getting a HECM
A home equity loan is a great way to get access to financing for your business. One of the benefits of a HECM, which is also called a reverse mortgage, is that it gives you the chance to borrow against the value of your home without having to make monthly payments. The interest rate on this type of loan can be fixed or variable, with either option providing significant benefits.
The Drawbacks of Getting a HECM
One major drawback of using a HECM to finance your business is that you are tying up your home equity. This means you can’t use the money in your home’s value for other investments, and it also means that if you sell your home, there will be fewer proceeds available. In addition, if you need more cash after getting a HECM, you may need to take out a personal loan or equity line of credit on top of the HECM.
What to Do If You Already Have An HECM
If you already have a HECM and would like to make use of it for your business venture, here are the basic steps:
- Speak with your lender about the different options that are available for your home equity loan.
- Use this calculator from the New York Times to find out how much you can borrow.
- Research other sources of funding that may be available such as credit cards, personal loans, and friends and family members.
Where To Get Help When Applying For An HECM
The first step is to find out if you’re eligible for a HECM. You can do this by contacting the Department of Housing and Urban Development (HUD) or going online to figure out your eligibility. If you are eligible, then you need to find a private lender that offers HECMs. This can be done by going through an online search engine or contacting your local bank or mortgage company.
Who Can Qualify For An HECM?
Home equity loans are typically secured by the equity in your home. If you own your home and have sufficient equity in it, you may be eligible for a HECM.
Fees Associated with a HECM
The most important factor to consider when taking out a HECM is the size of your loan relative to the value of your home. You can borrow up to $1,000,000 without paying any interest on the loan for as long as you continue living in your home. The amount you can take out will depend on two things: (1) your age and (2) the size of your down payment.