Obtaining a home equity loan does not have to be a major
ordeal. Unlike your first mortgage, you are already in
the home, and usually time is not such a major factor.
You can close the loan at your own leisure, and take
your time researching the different options available to
you. Below you will find five tips that will help you
make the process as painless as possible. Remember that
your best defense is a good offense, so understand the
process and everything that is involved. Don’t let your
lender pressure you into something that you don’t
understand.
1. Get pre-approved! This is something
that I would recommend for a first or second mortgage.
The process will vary depending on your lender, but you
can choose to get pre-approved or pre-qualified. The
pre-qualification process allows both you and the lender
to review your current financial situation. The lender
will then determine how much you can probably borrow.
There is no obligation and you are not locked into
anything. Pre-approval goes a step further and is a more
formal process. You will actually fill out an
application, and a credit check will be run. The lender
will then issue you a letter outlining the amount that
you can borrow. You can then use this to expedite your
loan, once you are ready to close.
2. Get your home appraised. When obtaining a home
equity loan, the critical part of the puzzle is how much
your home is worth. Don’t be fooled into thinking that
an appraisal is not necessary. Home values can fluctuate
depending on the economy and your own city demographics.
Any improvements that you have added to the home since
its purchase can also increase this value. So find out
at the very beginning how much your home is actually
worth. This will help give you a ballpark figure of how
much you can actually borrow.
3. Prepare yourself emotionally. A home equity loan
seems like a simple way to get needed funds. But, it is
important to remember that you have something major on
the line with this type of loan. Your home! If you fail
to repay your home equity loan, they could take your
home. So, it is important that you discuss the process
with everyone involved so they understand what this loan
entails. Set up a budget for a few months prior to the
closing, and set aside the extra monthly payment. You
will also want to consider any life-changing events that
may happen during the life of your loan. Are you
planning on having a child? Changing jobs? Etc. All of
these factors can alter your ability to repay your loan.
4. Do your homework. Knowledge is power. Make sure
that you have all of the facts when it comes to choosing
a lender and a mortgage program. If possible get
information from several lenders, so that you can make
an educated decision as to which one is the best for
your particular situation.
5. Get your break from Uncle Sam! In most cases a
home equity loan is tax deductible. So, make sure to
keep all paperwork associated with your loan, including
closing cost allocations. You may be able to deduct both
interest and principal in some cases. Consult with your
tax professional to find out how a home equity loan will
affect your tax situation.
With a little bit of time and effort, you should have
no trouble finding the right home equity product for
your specific needs. By planning ahead and researching
your options, you can rest assured that you made the
best possible choice for you and your family.
