In today’s financial environment, it is important to do your homework. Know your lender! Go to your bank or your credit union because these are your best sources to provide quality customer service, information and equip you with the necessary RESPA (Real Estate Settlement Procedures Act- HUD required) disclosures to enable you to understand the lending process, the cost, terminology, and what to expect. Check their online websites for more information. Forego the fairytale solicitors who say, “Apply, it is easy” to everything. Lending is not easy. These finance companies could be bad solutions and you will end up paying bogus fees, upfront application fees and get nothing in return. In addition to calling your lender, contact several other reputable financial institutions and do comparison-shopping. An informed consumer; is a smart consumer. Your financial future depends on the decisions you make today!
Before you dial, you need to know why you want a Home Equity Loan. Is it for a new pool for the family? Is your home in need of renovation/repair? Perhaps, you would like to consolidate debt? Is their a son or daughter going to college, and you need additional cash to cover unexpected expenses? Will you need the money in one lump sum or in spurts? How much money will you need? When will you need the money? Will the use of the money add value to your home, or does it negate the equity in your investment? Can your budget take another payment? These are important questions to ask.
There are several types of loan products. A closed-end home equity loan will provide all the cash at closing. If you prefer, you could discuss a home equity line, where you access your funds on an as-need basis. A good loan originator will be able to review with you all the options, possibly looking at refinancing the first mortgage to include what you are trying to accomplish, discuss interest rates, fixed or variable on the available products, the term, and payment on the products offered. With this information, you can make the choice as to what fits your financial situation now and in the future. There are greater risks with a variable rate loan, because the rate can go UP! The low rate is a teaser rate! In a few cases, very few, a variable rate can be a good choice. Do not be surprised if the lender gives you general information, because without a completed application, over the phone, online, or in person, they cannot tell you if you qualify for the products or the rates they offer.
In order to review your financial solutions, the complete application has to be processed. During the application, you will need to consent to a credit report. If you do not consent, your application is withdrawn, no decision rendered. If the credit report is processed, in addition, your lender may ask for a current month of paystubs for all employment, two years of tax returns (personal and/or business) containing all pages and schedules, all W2’s, all 1099’s, your homeowners’ insurance declaration page, and the real estate county/city tax card. Many times, a loan request is prequalified when the credit and application are completed but is turned-down when underwriting reviews the documents. Ask the originator why the underwriter did not approve the application. Perhaps you have other documents or income that you did not disclose during the original application process.
If you have bruised credit, a Home Equity Loan or credit line will not be your lifeline to get you back on your feet. These loan products are for good credit borrowers due to the risk to the lender being in second place. If the loan did default, the lender would, nine-times-out-of-ten, write the loan off, losing the principal and the interest, contributing to the company’s losses. Those who are credit-challenged, tell the originator upfront, to see if there are options for you. Perhaps they have a loan product that could service your needs. Good luck on your new venture; be wise in your decision. Your home is your greatest asset!