Mistakes People Make When Refinancing Home|
Mistakes People Make When Buying a Home
Mistakes When Taking Out a Debt Consolidation Loan
1. Choosing a home equity lender for the wrong reason (e.g., the lowest rate, your existing lender)
For many individuals, taking out a loan may be the only way to afford a house. People choose home equity lenders for all the wrong reasons. Getting a low rate is important, but it's not the only consideration when you want to take out a home equity loan. Lenders may offer the lowest rate but charge extra fees (loan fees, origination fees, copy fees) so that in the end you'll pay more for the home equity loan even though your rate may be lower. The only way to protect yourself is to wait for the Good-Faith Estimate which should list all the closing costs. Compare the Rates, Charges etc. from a number of home equity lenders.
But comparing is not the only step when you want to take out a home equity loan. If time is important, you want to choose a mortgage company that is capable of acting quickly in yor favour. Ask each company to give you their average closing time for loans similar to yours.
Ask around among your trusted friends. Find out who took out a home equity loan lately and ask them what they thought of the company service. Don't assume that your existing lender is any better than a new lender. Since most loans are sold in the secondary market, everyone has to meet certain criteria, and your existing lender will probably require the same documentation as a new lender. However, once you have a commitment from a new lender, it doesn't hurt to ask your existing lender by that you will get perfect idea of market.
Once you've finally decided, there's one last step before taking out that home equity loan. Call the Better Business Bureau (BBB) and find out if there have been complaints against this mortgage company or against this Loan Officer.
2. Not getting everything in writing when seeking a home equity loan.
Get everything in writing. No matter what the Loan Officer tells you about your home equity loan, ask him/her to confirm it in writing. Don't believe someone when they tell you that your home equity rate is guaranteed. Get it in writing. May be later you requires papers as written proof.
3. Not knowing the difference between a home equity loan and a home equity line of credit
Generally, a loan is for a fixed dollar amount, for a fixed period of time, with fixed monthly payments.
A line of credit is similar to a credit card because it only requires payments when there is an outstanding balance. Unlike a loan, there is no initial balance on a line of credit. With LaSalle, you are only required to make monthly interest payments. Because the line of credit is revolving, you can borrow, repay and borrow again.
In more a home equity loan is a loan, like a 2nd mortgage. A home equity line of credit a credit line - money that is made available to you to use when you need it. There's a big difference. Some credit lines have interest rates which are adjustable and which can go as high as 15% or more.
4. Not knowing the appraised value of your home
Appraised Value is what a real estate appraiser says your house is worth. Believe it or not, the appraised value of a home does not always keep up with real estate's market value.
Home equity loans and home equity lines of credit are based on the difference between what you owe on your house and what your house is worth. Many people go ahead and try to get a home equity loan on their home without knowing the true value. There are many places you can get an estimate of the true value of your home. Many realtor sites have home value estimators on their site. For the price of listening to a mortgage company try to sell you a mortgage, you can get an approximate value for your home.
Check the recent sales in your neighborhood and try to find a comparable house in a comparable location. The appraisal is based on the selling price of similar homes in the area, as well as subjective judgment. So two appraisers may value the same house differently.
5. Not doing the math on a home equity loan
These two incentives — low interest rates and tax savings — have made home equity loans extremely popular. For that reason, most experts recommend using home equity borrowing for major expenses rather than day-to-day needs. Home equity loans are frequently used to finance home improvements or pay tuition bills. If you can add loan repayment as a regular item in your budget without creating too much strain, then home equity borrowing can be a wise choice.
Having a home equity loan can be better than taking out a 2nd mortgage because the origination costs are less. However, the monthly interest rate may be more with a home equity loan than with a 2nd mortgage. So, depending on how much you are going to need and how soon you are going to need it, you may find that a 2nd mortgage is a better way to go.
One of the biggest mistakes people make with home equity loans is to take out a large amount of money and put it into their checking account. You may pay as much as 8% for the home equity loan while the money you took out is only earning 2% in your bank account. Recommendation - only take out as much as you are planning to use.