Five Things to Consider When Shopping for a Home Equity Loan
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Five Things to Consider When Shopping for a Home Equity Loan
Author:Ari Socolow
on January 30, 2011
- modified on September 10, 2017
Before you rush to apply for a home equity loan, you will want to give serious consideration to how you intend to use the funds, since you are using your home as collateral.
Before you rush to apply for a home equity loan, you will want to give serious consideration to how you intend to use the funds, since you are using your home as collateral. To assist you in making the right decision, here are some potential risks you will want to be aware of:
Know your upfront costs. There may be costs for taking out a home equity loan. By comparing several lenders' rates and fees, you can make a better decision. Do not be afraid to question your lender about a fee you do not understand.
Getting a home loan is not temporary. While qualifying for the funds you need may be easy, taking on a long term payment could be detrimental to your financial goals. Replacing one debt with another may not be the best solution.
Beware of the balloon payment.Obtaining a low-interest rate home equity line of credit (HELOC) may require making a balloon payment at some point in time. Unless you decide to refinance, take out another loan, or sell your home before the payment is due, you may have to pay off the balance on your loan.
Be careful not to overspend. Since a home equity line of creditacts like an open line of credit you may be tempted to use your access card or write a check each time you need an infusion of cash. You might be better off saving these funds for large purchases. It is always best to have a goal and a repayment plan that works for you.
Beware of the maximum loan-to-value. Most financial institutions will let you borrow up to 80% of the loan-to-value (LTV) ratio of your home less any outstanding mortgage payments on your property. Some lenders may offer 85% or 90% LTV but those can come with higher rates. Always ask for their best offer. Be careful not to max out your equity, in case home values decrease.
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.
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The Figure Home Equity Line is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw.
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Please note that the interest rates offered are subject to change based on market conditions and borrower eligibility. The pricing and rate provided are accurate as of the specified date. It is important to be aware that the minimum loan amount for any loan program is $50,000. The specific amount and terms of the credit offer will be determined based on underwriting approval and guidelines, which include factors such as your credit history, your ability to make payments, and the available equity in your home.
To qualify for this offer, you must meet the required criteria and demonstrate creditworthiness. Additionally, providing up to two years of income verification may be necessary. The severity of your credit may also impact the required down payment. It is crucial to understand that the lender reserves the right to cancel this offer if the provided information cannot be verified.
Please note that all bankruptcies must be discharged in order to be eligible. This offer is nontransferable and is specifically available for single-family residences or owner-occupied condominiums. Please be aware that mobile homes and cooperatives are not included in this offer. It is important to note that the lender must hold a valid first lien position, and property hazard insurance is a requirement.
These are some key details to consider when evaluating this offer. It is essential to thoroughly review the terms and conditions and seek clarification from the lender regarding any specific questions or concerns you may have before proceeding with the application process.
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