Finding the best home equity loan for your needs could save you thousands of dollars. It can also help you avoid terms that are unfavorable for your financial situation. Finding the best home equity loan starts with understanding the process.
Home Equity Loans Explained
Home equity loans allow you to apply for and obtain a loan by offering your home up as collateral. These types of loans can provide you with a large sum of cash. However, because your home is used as collateral, you do place yourself at risk for losing your home if you do not meet the terms of the agreement. Before considering a home loan, you may want to be sure that you have no other viable options.
Before You Start Searching
Before you can start searching for a home equity loan, there are a few things that you will need to do to prepare yourself. First, you should take the time to familiarize yourself with the different loan types as well as their pros and cons. Try to understand the basic meaning of common loan terminology so that you are adequately prepared to know which fees are reasonable.
You will also want to spend a fair amount of time considering the home equity loan itself. Consider what you need the loan for so that you can adequately determine just how much you need to borrow. Once you know how much you plan to borrow, start outlining different aspects of the loan, including how much you can afford to pay monthly, how long you want the repayment period to be, and what type of interest rate you are looking for. You can use a mortgage calculator to help you determine which repayment options will best fit your monthly budget.
Once you are clear on your terms, know which terms you are willing to be flexible with. Which terms will you stand firm on? This will leave you room for compromise while still allowing to keep your financial plan as close to the original as possible. Always remember, no matter what a lender tells you, you are the best person to determine what you can handle in term of your finances. Do not allow them to pressure you in to loan terms that make you uncomfortable.
The Importance of Comparison Shopping
As with most financial decisions, whether it is buying a pair of shoes or finding a home equity loan, shopping around can save you money. While a pair of shoes might only save you a few dollars, shopping around for the right home equity loan could, potentially, save you thousands.
While shopping around for your home equity loan, speak with different types of lending agencies, including lending brokers, credit unions, and banks. The more lenders you talk to, the better chance you have at obtaining the best loan terms.
Because your loan is based partly on your credit, you will want to be sure that you avoid multiple inquiries on your credit. This will decrease your credit rating. Ask lenders to wait to officially pull your credit until the loan process actually starts. You may even consider obtaining one credit report on your own accord and taking it with you to each lender. While they will need to pull a report on their own once the process starts, this can give them a good idea of what your credit looks like ahead of time. This will ensure that they are able to offer you a more reliable rate, based on your credit rating.
Working With Brokers
You will not always know immediately that you are working with a broker. Some lending agencies use brokers within their business that go by different titles. You should always ask if someone you are working with a broker. This information can change the rates and specifics of your loan.
While a broker may be able to help you find a better rate, brokers often have additional fees that you are responsible for. The most common fees associated with brokers are called points. Points are tied directly in with your interest rates. You may be able to negotiate these points. You must, however be aware of their presence to negotiate.
Negotiating With Your Lender
Don’t be afraid to make lenders compete for your business. Take your best rates and schedule fees with you to each lender appointment. See if a lender can beat your prime deal. This negotiation process can shave thousands off of your loan fees.
You should always ask a lender to write down schedule that details all of their fees as well as the amount. Having this information in writing will ensure that, while you are negotiating specific fees, that the lender doesn’t increase the price of one fee while reducing the other. Doing so locks you in to the rate they have quoted, protecting you from interest rates, if they should happen to rise before the loan is closed.
Watch Out For Deal Breakers
Deal breakers are considered loan terms that are highly unfavorable. These can cost you thousands of extra dollars. Some of the most common deal breakers include balloon fees, large pre-payment penalties, account maintenance fees, and check writing fees. If you experience a lender that applies any of these fees, avoid them at all costs.