Home equity loans come in two flavors. There are home equity loans and home equity lines of credit. Both types allow you to borrow against equity in your home and lock in appreciation in your home. Home equity loans are a loan made against your equity for a fixed dollar amount. The interest rate is fixed and you receive your money in a lump sum. Home equity lines of credit have variable interest rates and allow you to borrow an amount up to your limit similar to the way a credit card works. Home equity lines of credit come with checks or a debit card you can use to make purchases against your credit line. This type of credit line is ideal for homeowners that have home improvement projects planned because of the flexibility a line of credit offers. Home equity lines of credit offer excellent flexibility at a premium price; because these loans come with variable interest rates you need to research lenders and shop around for the best loan. Here are some tips to help you along the way. Clean Up Your Credit Your credit score will largely determine how much your home equity loan will cost you. The better your credit score, the better the interest rate you will receive. If you havent looked at your credit reports recently, you need to do this before anything else. Order a copy of each of your credit reports; you have three credit reports maintained by three separate companies. You are allowed by law, one free copy of each report per year. To get your free credit reports visit AnnualCreditReport.com. Once you have your credit reports carefully review them for errors. If you find errors on your credit reports you will need to dispute them with the individual credit bureaus. Once you have corrected the errors on your credit reports you can concentrate on improving your credit score. Your FICO credit score is based on the contents of your credit report and your debt-to-income ratio. Once you have cleaned up the contents of your credit reports you can improve your FICO score by paying off your debt. You should pay down the balances on your credit cards and close the accounts. The less debt you carry, and the fewer open charge accounts, the better your credit score will be. Research Lenders and Home Equity Loans The biggest mistake you can make is to pay too much for your home equity loan because you didnt do your homework. Comparing loans from a variety of lenders will help you find the best loan for you. Negotiating with lenders for better loan terms and fees is a skill you can learn; there are a number of mistakes homeowners make while shopping for a home equity loan. To learn how to avoid these common mistakes sign up for a free mortgage guidebook. |
