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Your Equity: Getting the Best Loan Possible

also see -> HELOC - Your Home Equity Line of Credit

Equity LoansSometimes a home equity loan is a good way to borrow money, but there are some lenders that only bring problems.

Predatory home mortgage lenders look for people who may have financial difficulty. They hunt for people who may be behind on property taxes, who need to fix up their home, or who need money for medical bills.

Once they find these people, the lenders often use high pressure sales talk, high interest rates, outrageous fees, and repayment terms that the person can't afford.

Fast talkers can trick homeowners into taking out loans that they can't afford to pay back. When they can't make the payments, their homes are at risk of foreclosure.

Even if you don't have financial troubles, no one wants to pay more than is needed. Why pay interest rates higher than you need to? Why pay unneeded fees or charges? Whether you have excellent credit or not-so good credit, you want the best possible loan you can get.

Don't be fooled by loan offers you see on television or receive in the mail. They don't tell the full story. Be a smart borrower. Don't get caught in a bad loan!

Follow these steps:

Know your credit rating and credit score.
Sometimes people who have good credit are charged higher rates and fees for loans because they don't know that their credit is good.

Getting your credit report and credit score may help you negotiate the best loan for you so you don't pay more than you should have to pay. You'll want to look for any mistakes in your credit report and take steps to correct them.

You can get your credit score on the Internet, usually for a fee, or a lender can give you a free copy when you apply for a loan. Avoid lenders who won't give your score to you. Most credit scores range from 300-850, and the higher the score, the better your credit. Most lenders consider scores over 700 as "good" to "excellent" scores.

Checking your own credit report will NOT lower your score. Make sure to check all three major reporting agencies. The score can vary depending on what information each of the reports shows. You will not know which agency your lender is checking.

Be prepared with clarification if there are questionable items on any of your credit reports! Under the Fair Credit Reporting Act you are entitled to receive an annual free disclosure of your credit report from each of the national credit reporting agencies.

The three major credit reporting agencies are:

Equifax: 1 (800) 685-1111
Request your annual free credit report:
Online
By phone - 1 (877) 322-8228)
or contact them at the address on the web site.

Experian: 1 (888) 397-3742.
You can request a credit report for a $1 fee that covers online access to your Experian credit report, your credit score and access to Experian's online dispute process with toll free support.

TransUnion: 1 (800) 916-8800
This agency offers credit monitoring with a free credit score. Asking for the score enrolls you in the 7-day Free Trial, then $16.95/month unless you cancel.

Be cautious about using a home equity loan to consolidate credit card debts.
Loan offers may tell you how you can save money by paying off credit cards with a home equity loan, but what they don't say is that your home is at risk if you do it. Yes, sometimes this type of loan is useful, but only if the loan's terms are very good-and you won't run up another credit card bill. Even then, if something should happen and you can't make the home equity payment, your home is at risk of foreclosure.

An important difference: Credit card lenders can't foreclose on your home if you don't pay your credit card bills. But, a home equity lender can foreclose if you don't make the mortgage payment.

Shop around.
Get several offers and pick the loan that's best for you-not one that is best for the lender or broker.

Know whether you want a loan or a line of credit.
Talk to several lenders-not just those who send you mail, call you, or knock on your door. Start with several banks, savings and loans, credit unions, and mortgage companies.

Understand the role of brokers if you decide to use one.
Brokers charge you to find a lender; they don't lend the money themselves. Some lenders also pay the broker and then pass their cost on to you as a higher interest rate. Since you are paying the broker either directly or indirectly, using a broker may not get you the least expensive loan.

Ask all lenders to explain the loan plan they have for you.
Pay close attention to the fees. Remember - the loan with the lowest monthly payment might not be the best deal. There could be hidden fees that may cost you more in the end.
See a housing counselor to discuss your options. You can locate counselors certified by the U.S. Department of Housing and Urban Development (HUD) by calling 1-888-466-3487 or visiting the HUD Web site for advice.

Learn about reverse mortgages.

For homeowners age 62 or older, this may be a better option than a home equity loan. These are loans you don't have to pay back as long as you live in your home. With a reverse mortgage you can get a lump sum of money, a monthly income, a credit line, or a combination of payment options.

Close your deal carefully.
Once you've found the loan you want, make sure you get the deal you were promised.

Follow these steps:

  • Read the loan papers carefully before you sign.

  • Ask a lawyer, housing counselor, or a trusted friend to help you go over the papers.

  • Be sure you understand exactly what the lender is offering -and what you're going to have to pay.

  • Ask to have all fees explained.

  • Ask questions if you don't understand something.
    Take your time. Don't be rushed.

  • Be sure that all blank spaces are filled in on all copies before you sign.

  • Know your options about credit life insurance. Only buy it if you really need it. Many people don't. If you do want it, shop elsewhere for the best terms. If the lender insists on it, find another lender. Be sure to look for this item on the forms given you at settlement.

  • If what you read in the loan is not what you wanted or expected, don't sign the papers! Be prepared to walk out of the settlement (closing) if you find surprises.

Tip:

To reduce unwanted credit offers call 1-888-567-8688 and ask all three credit reporting agencies Equifax, Experian, and TransUnion not to provide information about you to companies wanting to send you loan offers.


More about home equity loans around the Web:

What you should know about home equity lines of credit - Federal Reserve guide to shopping smart for equity loans including questions to ask about interest rates and fees, points and fees credit insurance and other topics, with related resources.

Home Equity Basics - Bankrate.com tips on leveraging equity with information on cash-out refinancing, lines of credit, and fixed-rate loans with sample worksheet and related resources.


 

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