3 Critical Questions To Ask A Home Equity Lender

[Jul 21, 2009.]

 

1.) Are You Offering A Home Equity Loan Or Line Of Credit?
This actually surprises many homeowners, but interestingly, not all home equity loans are equal. Traditional home equity loans, also known as second mortgages, carry a fixed loan balance with an initial lump sum closing. Home equity lines of credit (HELOCs), on the other hand, behave more like a typical consumer credit card secured by the equity in a home.

Unlike a traditional mortgage or home equity loan, the balance on a line of credit can adjust throughout the life of the loan. In this case, a borrower with a $100,000 line of credit can either take the cash upfront or borrow a few thousand and save the rest for later--some might even prefer to leave the loan untouched until a few years down the line.  Depending on a homeowner's needs, a home equity lender can easily help determine which type of equity loan is best.

2.) How Much Can I Borrow From My Home?
This straightforward question will quickly get a mortgage lender talking about financial abilities and limitations. With credit markets tightening recently, lenders are very interested to know about a borrower's credit history, total household income, existing debts, and estimated property value. One thing home equity lenders will be especially concerned with is the home's estimated value.

Nowadays, insufficient equity in a home can destroy any chance at an equity loan from the very beginning. If the home has enough equity to proceed, lenders will then determine how much homeowners can borrow based on credit scores and debt to income ratios.  And although these are relatively cheap loans compared to other consumer debt, it's important to borrow only what's necessary to avoid any equity issues in the future.

3.) Are You Willing To Match A Competitors Offer?
After shopping around with multiple home equity lenders, borrowers shouldn't be surprised if they come across a full range of offers. As far as interest rates and loan terms are concerned, the general structure of the loans will most likely be similar since they are based on financial qualifying factors. The main goal here is to see if a lender will match any special advertisements, or incentives, offered by another local lender. Such incentives can include a complimentary appraisal, lower introductory rates, or even a nice cash bonus for simply opening a checking account along with the equity loan. Even if the lender can't match a specific offering, this will open the conversation to negotiations and other alternatives.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.