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Think Twice
before You Sign
Have a knowledgeable friend, relative, attorney, or housing counselor review the Good Faith Estimate and other loan papers before you sign the loan contract. Be sure the terms are the same ones you agreed to.
For example, a lender should not promise one APR and then without good reason increase it at closing.
Refer to the list of questions you’ve written down. Ask where these terms are covered in the loan contract. And ask for an explanation of any dollar amount or term you don’t understand. Don’t let anyone rush you into signing the loan contract.
Make sure all promises, oral and otherwise, are put in writing. It’s only what’s in writing that counts.
Get a copy of the documents you signed before you leave the closing
Glossary of Terms
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Home Equity Line of Credit?
Careful Shopping!
A home equity line of credit is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer’s largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses.
With a home equity line, you will be approved for a specific amount of credit your credit limit, the maximum amount you may borrow at any one time under the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the home’s appraised value and subtracting from that the balance owed on the existing mortgage.
For example:
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Appraised value of home |
$100,000 |
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Percentage |
x 75% |
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Percentage of appraised value |
= $ 75,000 |
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Less balance owed on mortgage |
- $ 40,000 |
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Potential credit |
$ 35,000 |
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In determining your actual credit limit, the lender will also consider your ability to repay, by looking at your income, debts, and other financial obligations as well as your credit history.
Many home equity plans set a fixed period during which you can borrow money, such as 10 years. At the end of this "draw period," you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may allow repayment over a fixed period (the "repayment period"), for example, 10 years.
Once approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw on the line.
There may be limitations on how you use the line. Some plans may require you to borrow a minimum amount each time you draw on the line (for example, $300) and to keep a minimum amount outstanding. Some plans may also require that you take an initial advance when the line is set up
CONTINUE To : Equity Line Shopping - Examining Terms
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This information has been prepared to help you make the important decisions involved in buying and financing your home. However it should not be viewed as all inclusive OR as a replacement for professional advice. Talk with attorneys, mortgage lenders, real estate agents, and other advisers for information about lending practices, mortgage instruments, and your own interests before you commit to a specific loan or action.
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