If you decide that the timing’s right for a home equity loan, ask your friends or family for recommendations of lenders. Then, comparison shop. Comparing loan plans will help you get a better deal. Contact several lenders and talk with banks, credit unions, mortgage companies, and mortgage brokers. Remember that brokers don’t lend money; they help arrange loans.
Ask all the lenders you interview to explain the loan plans that are available. If you don’t understand any terms or conditions, ask questions. Pay close attention to fees, including: the application or loan processing fee, origination or underwriting fee, lender or funding fee, appraisal fee, document preparation and recording fees, and broker fees which may be quoted as points, origination fees, or interest rate add-on. If points and other fees are added to your loan amount, you’ll pay more to finance them.
Also ask for your credit score. Credit scoring is a system creditors use to help determine whether to give you credit. and consists of Information about you and your credit experiences – like your bill-paying history, the number and type of accounts you have, late payments, outstanding debt, and the age of your accounts. It is collected from your credit application and your credit report. Creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — your credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when they’re due. To get copies of your report, contact the three major credit reporting agencies:
Experian: (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
Equifax: (800) 685-1111
If you find that you have a lower credit score than you expected due to excessive debt, contact ACCC for help. When you contact our approved credit counseling agency, a certified credit advisor will help you evaluate your current financial situation and provide you with personalized debt solutions based on your goals.
Negotiate with more than one lender. Don’t be afraid to make lenders and brokers compete for your business by letting them know that you’re shopping for the best deal. Ask each lender to lower the points, fees or the interest rate. And ask each to meet — or beat — the terms of the other lenders.
Before you sign, read the loan closing papers carefully. If the loan isn’t what you expected, don’t sign. Either negotiate changes or walk away. Generally, you have the right to cancel the deal for any reason without penalty within three days after signing the loan papers. The lender must return any money you’ve paid to date.
TO LEARN MORE
For more information about shopping for a home equity loan and a glossary of home loan terms, call the FTC’s Consumer Response Center toll-free at 1-877-FTC-HELP(382-4357). Ask for a free copy of Looking for the Best Mortgage: Shop, Compare, Negotiate; and Home Equity Loans: The Three-Day Cancellation Rule. Or visit online at ftc.gov.