24 mars 2022 admin3609

Step 6: Consider lending options that could provide cash, but be careful

Looking for full-time employment in your chosen career field should certainly be your primary focus. However, you can’t ignore opportunities to keep your finances afloat while you find that next opportunity.

As you look for ways to keep yourself afloat during this period of unemployment, you may consider financing solutions that can provide cash. Getting funds that you keep you out of the red for a few months may sound like a no-brainer. However, there are some key points that you’ll want to consider before you get a loan that you potentially don’t have the means to pay back.

  • How much time will you have before the new loan payments start? Will that be enough time for you to find new full-time employment?
  • How much does the new loan increase your financial risk? What will you be risking by taking those funds out?
  • How much will this new loan cost you and when will you need to pick up that tab?

Here are some of the most common financing solutions that people consider when they’re facing unemployment. Understand the risks of each of these options and make sure to talk to an expert before you use any financing solution during a period of unemployment.

Home equity loans / HELOCs

With these types of financing solutions, you borrow against the equity built up in your home. Equity is the fair market value of your home minus the remaining balance on your mortgage. You can generally borrow up to 80 percent of the equity you have available.

With a home equity loan, you borrow a set amount of cash in a single lump-sum that you pay back over time. The payments on a home equity loan will generally start immediately. With a HELOC, the lender extends you a line of credit that you can borrow from as needed. There’s generally a 10-year draw period, where you’ll only be required to pay interest charges on what you borrowed. After 10 years, you must begin to pay back the principal debt.

The risk of these two options is that both are secured forms of credit. They use your home as collateral. So, if you don’t make the payments click, you could be at risk of foreclosure. You should only consider this option if you have a high degree of certainty that you can secure a new job quickly to get your income back. And even then, it’s an increased risk that shouldn’t be taken lightly.

You may also have issues getting approved for these types of loans when you’re unemployed. Verifying income to make payments is a requirement during the loan underwriting process. So, if you have no income to make the payments, you may not get approved at all.

Cash-out refinancing

This is another lending option that homeowners can potentially use if you have equity in your home. With this option, you take out a new mortgage for an amount equal to the fair market value of your home. You use part of the funds to pay off your existing mortgage. Then you receive the difference in cash.

While this option can provide you with a significant cash influx without taking out a second mortgage, it still increases your risk of foreclosure. It will also increase the total amount of mortgage debt you have to repay and may increase your monthly payments and total costs. All of this can make it tough to keep up with your new mortgage payments. You could end up using the cash you receive just to make those payments. And again, if you don’t keep up the payments on the new mortgage, you could risk the lender starting a foreclosure action.

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