Mortgage & Home Equity Loan Tips

1. Don't look for a home without being pre-approved
   You will have much more negotiating clout with the seller, and may be able to save thousands of dollars as a result.

2. Don't make verbal (oral) agreements
   When buying or selling real estate, always get it in writing.

3. Don't choose lenders just because they have the lowest rate
   Consider the overall cost of your loan, and pay close attention to the APR, loan fees, discount and origination points.

4. Shop around for a mortgage
   Get mortgage quotes from at least three companies before deciding.

5. Get a rate lock in writing
   Get a written statement detailing the interest rate, the length of the rate lock, and other particulars about the program.

6. Don't use a dual agent (one representing both buyer and seller)
   Since the seller usually pays the commission, the dual agent may negotiate harder for the seller than for the buyer. If you're a buyer, it is usually better to have your own agent represent you.

7. Don't buy a home without professional inspections
   Get property, roof and termite inspections, unless you're buying a new home with warranties on most equipment.

8. Don't take the seller's word that repairs have been made
   If the seller agrees to make repairs, have your inspector verify the completed work prior to close of escrow.

9. Shop for home insurance well before you are ready to close
   A paid homeowner's insurance policy (or a paid receipt for one) is required at closing; if you wait until the last minute to get insurance, you may have no time left to shop around.

10. Don't sign documents without reading them
    As soon as possible, review the documents you'll be signing at close of escrow, including all loan documents, so you won't have to sign them in a hurry.

11. Shop around before refinancing with your current lender
    Your current lender may not have the best rates and programs, and in most cases, they'll require the same documentation as other lenders and mortgage brokers.

12. Do a break-even analysis before refinancing
    Divide the total refinancing costs by the monthly savings to determine the number of months you'll have to stay in the property to recoup your costs.

13. Get a written good-faith estimate of closing costs
    Within 3 working days after receipt of your completed loan application, your mortgage company is required to provide you with a written good-faith estimate of closing costs.

14. Don't pay for a complete home appraisal when you think the appraised value may be too low
    Ask for a desk-review appraisal if you believe the home is unreasonably priced; do not waste your money on a complete appraisal in those cases.

15. Don't use the county tax assessor's value as the market value of your home
    Use the sales (or market data) comparison approach instead, like mortgage companies and real estate agents do.

16. Provide your mortgage company with documents in a timely manner
    If you let your rate lock expire, you could end up paying higher rates.

17. Don't draw against your home equity credit line before you refinance your first mortgage
    If you draw against your credit line for anything other than home improvements, many lenders will consider your first mortgage refinance transaction a "cash-out" refinance. This creates stricter lending requirements and can, in some cases, break your deal.

18. Don't get a second mortgage before you refinance your first mortgage
    Many mortgage companies look at the combined loan amounts (i.e., the sum of the first and second loans) when you are refinancing only your first loan. If you plan on refinancing your first loan, check with your mortgage company to see if having a second loan will cause your refinance to be turned down.

19. Check to see if your credit line has a pre-payment penalty clause
    Many "NO FEE" credit lines have a pre-payment penalty clause, which can be very expensive if you are planning to sell or refinance your home in the next three to five years.

20. Don't get too large a credit line
    As a result, you could be turned down for other loans, even when your credit line has a zero balance, since it indicates a large potential payment.

21. Understand the difference between an equity loan and a credit line
    Equity loans are closed: You get all your money up front, then make payments on that fixed loan amount until the loan is paid. Equity credit lines are open: You can get an initial advance against the line, then reuse the line as often as you want during the period the line is open.

22. Check the lifecap on your equity line
    Many credit lines have lifecaps of 18%. Be prepared to make high interest payments if rates move upwards.

23. Don't get a credit line from your local bank without shopping around
    Don't automatically get your credit line from the bank with which you have your checking account; shop around instead.

24. Don't assume that the interest on your home credit line/loan is tax deductible
    In some instances, the interest on your home credit line is NOT tax deductible. Contact an accountant or CPA to determine your particular situation.

25. Don't assume a home equity line is always cheaper than a car loan or a credit card
    Compare the effective rate of your credit line (i.e., after the tax deduction) with the rate on a credit card or auto loan.

26. Don't get a home equity credit line if you plan to refinance your first mortgage in the near future
    If you plan on refinancing your first loan, check with your mortgage company to determine if getting a second line/loan will cause your refinance to be turned down, since many mortgage companies look at the combined loan amounts (i.e., the first loan plus the equity line/loan) even though they are refinancing only the first mortgage

27. Don't get a home equity credit line to pay off your credit cards if your spending is out of control
    When you pay off your credit cards with your credit line, don't put your home on the line by charging large amounts on your credit cards again.

Also, consider the following advice from the U.S. Department of Housing and Urban Development when applying for a loan:

• Be sure to read and understand everything before you sign.
• Refuse to sign any blank documents.
• Do not buy property for someone else.
• Do not overstate your income.
• Do not overstate how long you have been employed.
• Do not overstate your assets.
• Accurately report your debts.
• Do not change your income tax returns for any reason. Tell the whole truth about gifts.
• Do not list fake co-borrowers on your loan application.
• Be truthful about your credit problems, past and present.
• Be honest about your intention to occupy the house.
• Do not provide false supporting documents.

Mortgages
Home Equity Loans