Home Equity Loans - Ask Questions and Know Your Rights to Reduce Risks

After using your loan calculator to shop for a home equity loan, you feel confident that you have found the right loan. Before you make any commitments, however, remember these essential tips.

Read more than the interest rate on loan forms.

Have your lender provide:

  • A Good Faith Estimate (GFE) of all loan charges, required by law within three days of application. You can ask for one even sooner--GFEs are good tools when shopping for a loan and comparing deals.
  • A Truth-in-Lending (TIL) disclosure, which indicates your interest rate, any special considerations like ARM adjustments, and tells you if there is a prepayment penalty. The TIL also contains your total financing costs and your annual percentage rate (APR), which states your loan costs as a percentage, allowing you to compare loans more easily and choose the best deal.
  • Advance copies of the documents you will sign when you close on your loan--this way you won't be trying to read and understand all that fine print when you're at the title company or attorney's office.

Your lender should provide an updated GFE when you lock your loan, and again if the terms change on your loan before closing.

Confirm the terms before signing.

  • The law allows you to inspect the final settlement statement before closing. Use this opportunity to write down any questions that you want to ask before signing.
  • Ask for help if you need it. A knowledgeable attorney, housing counselor, or even a friend or relative can review the loan documents. Your loan officer should also be prepared to answer any questions. However, no matter what this person says, you can only rely on terms put in writing.
  • Confirm that the terms on the final contract are the same as those to which you agreed when applying. New HUD closing documents should reconcile to your GFE and your fees should be very close to what was disclosed on the estimate.
  • Before you leave, make sure that you have a copy of every document that you signed.

You still have time after you sign

As an experienced user of mortgage payment calculators and similar tools, you probably have all of your bases covered and look forward to having your home equity loan funds available.

Even if you have signed the loan documents, however, you still have a little time to reconsider. When you put up your primary residence as security for any home equity loan, federal law gives you three business days after signing the papers to cancel the deal.

  • You must cancel in writing.
  • You may do so for any reason without a penalty.
  • The lender must return any money that you have paid up to that time (except certain fees like an application fee or charges for an appraisal).

Knowing your rights will give you added assurance when making this important decision.


Posted By :
Dean Schermerhorn, MA, owner of Concise Communications, lives in Reno, Nevada. He has written for banking, health-care and manufacturing businesses and articles on finance and business topics.

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