3) Consider a purchase HELOC - This is becoming one of today's most popular purchase loans. HELOC stands for Home Equity Line Of Credit. A HELOC is like a cross between a conventional mortgage and a credit card. You get a line of credit based on the amount of equity in your home. In the case of a purchase, the bank "pretends" that you own the new house, gives you a line of credit for 100% of the value, and then you use the money to actually purchase the house. As you pay down the loan, your equity is always available to you. For example, suppose you buy a house for $200,000, and sooner or later pay the loan down to $160,000. Now you want to buy a car, put in a pool, or remodel the kitchen for $20,000. You can simply write a check against your HELOC for the $20,000. There are no additional fees or closing costs because this is not a new loan, the lender just adds the $20,000 on top of you $160,000 balance so you now owe $180,000. All of the interest on this loan may be tax deductible. The interest rate varies with the prime rate, and your payments vary based on the current loan balance and rate. Prime rate usually changes slowly, so the rate is more stable than many other adjustable rate loans, you keep the flexibility of always having your equity available, and your payment decreases as you pay down your balance. As interest rates rise, you can offset the increase in payments by paying off part of your balance without the need to refinance.

Remember that in some cases your best option may be a conventional loan with PMI. Work with a mortgage broker or financial advisor who understands these options and can explain the impact each option will have on your specific situation, and avoid working with anyone who takes a "one size fits all" approach.

~ Dan Hoffman, Mr. Homes & Loans