Shopping for a Home Equity Loan

Home Equity Loans:   Shop around before you sign. A home equity loan is a very important purchase, so when the time comes it's beneficial to do your homework and shop around.   You may want to ask friends and family for recommendations, because comparing loan plans can help you make a better, more informed decision. First, contact several lenders: banks, savings and loans, credit unions, mortgage companies, and mortgage brokers. Remember, brokers don't lend money: they help arrange loans.    Ask all the lenders you interview to explain the various loan plans they have for you. Don't be afraid to ask questions if you don't understand a term or condition.   Knowing the amount of the monthly payment or the interest rate is essential, but you have to ask for more information than that.   Ask about the 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 end up paying more. Also, ask for your credit score . Credit scoring is a system creditors use to help determine whether to give you credit. Information like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts is collected from your credit report and makes up your credit history .   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. Don't be afraid to negotiate .   Make lenders and brokers compete for your business.   Let them know that you're shopping for the best deal.   Ask them to lower the points, fees or the interest rate, in order 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 or wanted, don't sign the loan. Either negotiate changes or walk away. You also generally have the right to cancel the deal for any reason within three days after signing the loan papers. The lender must return any money you've paid to date. Here are some questions to ask possible lenders before you sign: What are the monthly payments? What is the Annual Percentage Rate (APR)? What is the interest rate? Will the interest rate change?   When? How often? By how much? What will you have to pay in points? What will you have to pay in fees? Are any of the application fees refundable if you don't get the loan? How many years will you have to repay the loan? Is this an installment loan or a line of credit? Is there a balloon payment? What are the total closing costs? If you use a broker, how will he or she be paid? Does the loan include optional credit insurance? If you want optional credit insurance, can you pay for it monthly instead of financing the premiums as part of your loan? Did you get a copy of your credit score? Can you afford this loan ?