Points to consider before applying for a home equity loan

A home equity loan enables a person to borrow money based on the home’s equity. The money received from a home equity loan can be used for different purposes such as making home improvements, educational financing, debts consolidation and others. Though the home equity loan offers such benefits, it is better to consider certain key points before going taking up the loan.The first thing to do is to consider other options that serve your financial needs. If you need information contact your local social service agency, community or religious groups, and local or state housing agencies, to see what options they put forward that you could use to meet your financial requirements.Should you choose to take the loan, the next important thing is to talk to the lenders, banks, or credit union in your community. Compare the cost of loans offered because sometime you may find a loan offer that costs less. It is important to do this because if you land up borrowing from an unscrupulous lender, especially one who offers you a high-cost loan using your home as security, you could end up losing your home and money. Get all information related to the loan such as interest rate and payments to be made. At this point it’s important to ask yourself, if you can afford such payments. You will need to know the term of repayment and so find out how many years it will take for you to repay the loan. Some lenders may ask you to make a balloon payment, which is a single payment at the end of the loan term after a series of low monthly payments. Consider if you want such a feature as part of your loan. It is important to find out about points and fees that you will be charged. Usually one point is equal to one percent of the loan amount. If the points are high, it means the interest rate on the loan will be low. If your lenders charges you is more than 5 percent of the loan amount, you need to know the reason. Normally, traditional financial institutions charge one to three percent of the loan amount in points and fees. In certain situations the lenders will charge a prepayment penalty, should you make payments to complete the loan quicker. Learn about such details from your lender. You may also be offered optional credit insurance, such as credit life, disability, or unemployment insurance. The credit insurance is used to cover some or all of your payments if you can't make them. It is important to understand here that you do not have to take credit insurance; it is only an option, so don’t buy insurance that you don’t need.Once you have completed collecting all information pertaining your home equity loan and after selecting an appropriate lender, you need to get all matters related the loan forms in place. Get a “Good Faith Estimate” of all loan charges, which must be done within three days of applying. You also need to get blank copies of the forms that you will be signing when the loan is final. This is vital because the forms may contain something you don’t understand. So don’t wait till the last moment, get them in advance and study them. If you have any doubts, don’t hesitate to contact your lender and clear these issues. Before signing the forms look to see if the lender is rushing you to sign in the loan contract. Remember don’t let anyone rush you into signing, unless you feel confident to do so. If there were any promises made by the lender orally, make sure that it has been put into writing otherwise such promises are no good. After the forms are signed, before you leaving the closing, get a copy of the documents you signed

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