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Applying for A Home Equity Loan - What you Need to Know

efore you apply for a home equity loan, first decide if a fixed-rate home equity loan (HEL) or a variable-rate home equity line of credit (HELOC) will better suit your needs. While a home equity loan offers you a fixed interest rate for a set amount to be repaid over a specified period of time, a home equity line of credit is more flexible - you can borrow what you need up to your approved credit amount at a variable rate that can adjust.

Before you apply for a home equity loan, first decide if a fixed-rate home equity loan (HEL) or a variable-rate home equity line of credit (HELOC) will better suit your needs. While a home equity loan offers you a fixed interest rate for a set amount to be repaid over a specified period of time, a home equity line of credit is more flexible - you can borrow what you need up to your approved credit amount at a variable rate that can adjust.

Loan Application Questions

Since both are secured by the collateral in your home, there are specific questions you will want answered before you apply:

Annual Percentage Rate (APR) Is the rate fixed or variable? What is the actual APR once the introductory period ends, if any? How often can the rate adjust?

Cap What is the maximum rate amount your loan can increase annually? During its lifetime?
Closing costs How much do fees and other closing costs add to the Annual Percentage Rate (APR)? What are my out-of-pocket costs?
Conversion Does your adjustable loan allow you to convert to a fixed rate? If so, how many conversions are allowed and is there a conversion fee?
Draw period How long will the money be available to use?

Fees Are any of the fees due upfront, refundable, or built into the costs of the loan?
Index What is the index used to calculate your HELOC rate and how often does it change?
Margin How many percentage points are added to the index to determine your adjustable HELOC rate?
Pre-payment penalty Are there any fees to pay my loan off early?
Relationship Banking Benefits Are there any benefits if I have my checking, savings, and home equity loan accounts at the same institution?
Repayment period

Is there a balloon payment due at the end of the loan period, or do I have an additional period of time to repay the loan?

Transaction fee Is there a transaction fee for accessing your HELOC?
Withdrawal amount Is there a minimum amount you have to withdraw each time you access your HELOC?

Make sure to speak with a loan officer should you have other questions regarding loan terms and rates. Compare home equity rates.

Low Rates Still Not Enough to Encourage Home Ownership

Mortgage rates may never be this low again. So why are the numbers of people looking for mortgage loans or refinance loans dropping?

In the last couple months, we’ve seen mortgage rates hit rock bottom. Who knows if they will ever be this low again let alone stay this low for much longer. Yet these amazingly low rates still have not helped increase sales figures for homes lately. Why is that?

According to reports, the number of mortgage loan applications has dropped significantly in recent months. Just in the last week alone, the number has dropped by nearly 1.5 percent. Apparently, American consumers are simply passing on buying a home right now because of the uncertainty of the economy and the job market. Even though mortgage rates currently stand at less than 4.5 percent, few people are looking at home ownership as something they need to do right now. Instead, many people are choosing to pay off some of their debt and put some money in the bank in case something drastic happens to their finances.

But there are other reasons as well. The number of people wanting a refinance has also dropped despite the low mortgage rates. Some homeowners are turned off by getting an appraisal on their home in order to get a refinance. Appraisals aren’t cheap and paying for an appraisal does not guarantee that you will qualify for a refinance loan. In fact, many people pay hundreds of dollars to get an official appraisal of their home and then they are turned down for a home refinance loan.

Other homeowners are citing reasons like their bank continues to decline their refinance application because of other debt. It seems that, at least in some cases, the banks are looking for excuses to not refinance homes for people which is frustrating many homeowners who feel like they qualify for the historically low rates. Some say the reason they have not refinanced is because they have gone through the obstacles of applying online and nothing has happened. After hours of jumping through the hoops to apply for the refinance, many people find that they have wasted their time or they find that the loan provider isn’t offering them nearly as much money that they need to refinance. One homeowner said she has a score of over 800 and the bank only offered her about 60 percent of her home’s value.

Have you tried to get a mortgage loan or refinance your home in the last few months to take advantage of the current interest rates? What are some of the things you are running into when you do this? Let us know in the comments below.

California Agency Offering Help for State's Homebuyers

California is one of the hardest hit states when it comes to the housing crisis. But their could be good news as the state is trying to help potential homebuyers.

It would be nearly impossible to argue that California has not suffered greatly from the recent mortgage crisis. In fact, California has been one of the hardest hit states in the nation when it comes to the housing problem in recent years. It may even be the hardest hit, but it would be in competition with Michigan, Nevada and a couple other states. But that is why the CalHFA, or California Housing Finance Agency, recently announced that it would help some homeowners who are trying to put a decent down payment on a new home.

According to the recent announcement, the CalHFA is offering up to 3 percent to homebuyers who meet income requirements. Those requirements will vary between counties and the homebuyers will need to put an application in with the California Homebuyer’s Downpayment Assistance Program in order to be eligible for the 3 percent. The money can either go towards the purchase price of the home as a down payment or it can go toward the closing costs and fees of the new home.

Currently, the agency is unsure about how many people will qualify for the financial assistance. To help matters along, CalHFA has also launched a new 30-year fixed-rate mortgage which will be backed by the FHA to help attract the potential homebuyers who are unable to afford the home prices right now. As the requirements vary by county, it is difficult to spell out any eligibility standards in general, but Los Angeles County requires eligible participants to make less than $111,020 per year and the loan limits are $417,000. In addition for this particular country, potential homebuyers must have a credit score of at least 620 and they will need to complete a homebuyer education program before being considered eligible.

According to a spokesperson for the program, the state’s real estate market will still be fragile for some time to come due to the high unemployment rates and the housing prices. However, this new opportunity will be a big step in stabilizing the state’s real estate market while addressing California’s larger needs.

CalHFA has received nearly $700 million in funds from the Hardest Hit Fund to help get these opportunities off the ground for people trying to buy a home but cannot afford the down payment. The funds are also allocated to help homeowners who have fallen behind on payments and other troubled homeowners. Hopefully, this will be a step in the right direction for the Golden State’s many financial troubles.

"First Look" Program Gives Communities a Heads-Up on Foreclosed Homes

The federal government is giving local jurisdictions first crack at the foreclosed homes in their communities. How will this new program work and will it benefit the housing market?

One of the newest ideas to help the mortgage industry is the “First Look” program, which is a program designed to give communities a chance to by foreclosed homes and properties before they go on the market. The plan was announced on Wednesday by Shaun Donovan, the Housing Secretary. It is part of an overall redevelopment offer to help cities revitalize and do something positive with the many empty homes that are scattered throughout their community.

The First Look program will give local governments a look at the available foreclosed homes before the lists are released to other organizations and to the public. The local governments will also be able to buy these foreclosed homes with a one percent discount. The program is designed to speed up the removal of the foreclosed homes from bank lists, but vacant homes are also bad for property values in the neighborhoods in which they are located. As a result, the First Look program should also help revitalize neighborhoods and bring market values of homes up.

The First Look program is just one program in the Neighborhood Stabilization Program which has allocated about $7 billion to local governments to help revitalize their ailing communities. However, much of those funds have gone unspent because local governments do not have as much control over foreclosed homes and other factors that could revitalize their communities. Craig Nickerson, the President of the National Community Stabilization Trust, said the revitalization process cannot be successful unless the organization can control all factors involved.

There are only a handful of lenders that account for about 75 percent of the foreclosed homes on the market. Those lenders include Chase, Wells Fargo, Bank of America, Citibank and Freddie Mac. However, according to officials, only about 20 percent of these foreclosures will go through the First Look program. Some communities may not even be able to participate in the program because they will not have enough time to enter into these contracts by the time they receive their money. Nearly 150 of them will have less than 30 days to use the money they receive as part of the Neighborhood Stabilization program. If they don’t spend it by the deadline, their funds will be frozen or even taken away from them. This is a problem for many local governments who need more time and wish the program was available to them months ago so they could get a better headstart on buying the foreclosed homes.

Low Credit Scores Causing Problem for Home Loans

The FHA has issued new guidelines regarding credit scores and qualifying for mortgage loans. What do these new regulations means for you?

FHA mortgages were once a gateway for first-time and troubled mortgage borrowers to get a loan so they can get a home. But that doorway has closed a little bit as the government recently announced that it may pass a proposal that restricts borrowers with very low credit scores from getting and FHA mortgage.

The Department of Housing and Urban Development wants to regulate the credit scores that qualify for FHA mortgage loans. Officials want to make it so borrowers must have a credit score of at least 500 in order to qualify for mortgages that are insured by the FHA. This will be the first time in the housing industry that the department has required a minimum score.

The new regulations probably won’t have a huge impact on the housing market. In the second quarter of this year, there were not any FHA loans issued to borrowers who had a credit score of less than 500. There were fewer than one percent of mortgage applications from borrowers who had a score of less than 580. The majority of the mortgage loans were granted for those borrowers with a credit score of at least 620.

According to Michael Fratantoni, the vice president of research and economics for the Mortgage Bankers Association, the FHA has had a practice of not allowing borrowers with a credit score lower than 500 qualify for a mortgage. The new regulation will just make this practice official. The proposal is part of a greater effort to reduce the number of defaulted mortgages and to increase the funds that secure those mortgage loans, says David Stevens, the HUD Commissioner. HUD has experienced many defaulted mortgage loans as a result of the housing crisis and the number of FHA loans has also increased in the last couple years. In May of this year, nearly 9 percent of all FHA loans were seriously delinquent. That’s about a one percent increase over May of 2009.

The FHA has also been playing with some other ideas to help reduce the number of mortgage defaults and delinquencies. One proposal would require borrowers with credit scores lower than 580 to put at least 10 percent down on their new home. Officials figure that if buyers have more money invested in their home, they will be less likely to default on their mortgage payments.

The housing departments are looking for public opinion on these proposals as they have not gone into effect as of yet. HUD and FHA will evaluate any comments, opinions or input before putting these proposals into practice so be sure to let your voice be known.