Understanding the Costs of a Home Equity Loan

Are you considering obtaining a home equity loan? While home equity loans can present you with a great way to consolidate bills or to make large purchases, it is important for you to understand that there are many fees that are typically associated with obtaining a home equity loan. Therefore, it is important for you to understand the expenses associated with home equity loans so you can take out the type of loan that is best for you and your personal situation.

Typical Closing Costs

Just as is the case when taking out a mortgage loan, there are typically many closing costs associated with taking out a home equity loan as well. In fact, the closing costs of home equity loans are generally equal to 2 to 5 percent of the total amount of the loan. This is because there are several fees associated with the closing of a home equity loan. These include:

Application fees
Attorney or title agent fees
Document preparation fees
Property appraisal fees
Title search fees

If you take out a home equity line of credit rather than a traditional home equity loan, you may not have to pay all of these closing fees in order to seal the deal. Still, you will likely have to pay for the property to be appraised and there may be an annual fee for keeping the line of credit open.

Interest Fees

Any time you take out any type of loan, you will have to pay interest on the funds you have borrowed. The same is true when it comes to equity loans, whether they are the traditional home equity loan or a line of credit equity loan. If you take out a traditional home equity loan, you will likely be charged a fixed interest rate. If you take out a line of credit home equity loan, on the other hand, you will likely receive a variable interest rate instead. Either way, the interest rate will likely be lower than what you would find on a credit card. Nonetheless, you should compare offers and be aware of the costs that interest fees will add to your overall expense.

Keeping the Costs Down

While it is impossible to completely avoid paying fees when taking out a home equity loan, there a few steps you can take in order to keep your expenses minimal. One of the most important steps you can take is to shop around, as different lenders will have different terms available with their loans. You may also be able to save money by selecting a lender that will take a computerized estimate of your home's value rather than paying an actual appraiser to go to your home. While there still may be costs associated with these types of fees, they are generally far less than what you would pay for a full appraisal.

About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

Understanding the Difference Between Being Pre-Qualified and Pre-Approved for a Mortgage Loan

If you are in the market to purchase a new home, you might want to consider meeting with a lender in order to find out how much you can afford to pay on your new home purchase. By meeting with a lender, you can successfully determine a price range for your home purchase, which will help you to significantly reduce your choices. At the same time, when you meet with a lender to discuss how much you can afford, you might be a bit confused by the terms associated with this prescreening process.

Getting Pre-Qualified

While there is some disagreement within the industry regarding what it means to be “pre-qualified” for a loan, most lending institutions agree on one definition. The most commonly accepted definition is that getting pre-qualified for a loan means that the lender has made an educated guess about how much you can afford to purchase a home. This guess is based entirely on the information that you provided to the lender and may change significantly once the lender verifies the information that you provided. Of course, the more honest you are with the lender, the closer these figures will match with the amount you are actually approved to borrow.

Getting Pre-Approved

Again, there is some disagreement surrounding what it means to be pre-approved. The general consensus of this term, however, is that the lender has actually verified the information that you have provided. With this information, the lender was able to more accurately determine how much of a loan you would be able to receive. Although this is still not a guarantee of approval, you can be relatively certain that you will be able to qualify for a loan up to the amount the lender has pre-approved.

The Benefits of Getting Pre-Qualified and Pre-Approved

There are many benefits associated with getting pre-qualified or pre-approved for a mortgage loan. The most obvious benefit is that it gives you a better idea of how much you can afford to pay on a home. Of course, you should also take a look at your budget for yourself and consider both your short-term and long-term goals in order to be certain you can truly afford the amount you have been pre-qualified to receive.

When it comes to making an offer on a home, being pre-approved for a loan can also be advantageous. Since you went through the trouble of getting pre-approved and because it is relatively certain that your loan will be approved, a home seller may accept your bid over another person’s bid if you are pre-approved for a loan. Also, by being pre-approved before you start house hunting, you may be able to close the deal sooner once you find the perfect home.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

Why Get Pre-approved for a Mortgage?

Imagine the scenario. Months into your grueling house search, you have finally found The One. The location is right and the home and property fulfill your wish list to a T. You have already unpacked your boxes and stretched out on your expansive deck…in your imagination. The only thing standing between you and your dream home is the paperwork. And you’ve already pre-qualified for a mortgage, how hard could it be? All the stars are aligned and it’s time to make an offer.

Not so fast. Another family has already begun envisioning their own version of life in your dream home. Dad is grilling steaks on your dream deck while the family dog pounces through your beautiful kitchen. The only difference between yourself and the competing buyer? The other family has been pre-approved for a home loan, and places an offer on the home right away.

The difference between being “pre-qualified” and “pre-approved” warrants clarification. First, it is important to understand that neither being pre-qualified or pre-approved guarantees financing for a home. Pre-qualification means that someone, perhaps your real estate agent or lender, has informally taken a look at your finances and deemed that you are likely a good candidate to qualify for a home loan of a certain amount. Bear in mind that pre-qualification is based on information you provide that has not been verified, and in no way guarantees that you will actually qualify for a loan in the amount specified. So if you are not guaranteed financing based on the amount for which you pre-qualify, of what use is being pre-qualified? Getting pre-qualified can be a good start for home buyers who have no idea of what price range they can afford. Having a general idea of the loan amount for which a home buyer may qualify helps real estate agents and home seekers narrow down the pool of potential properties significantly.

Getting pre-approved for a home loan takes the process a step further, and will give you a more accurate number to work with during your home search. Your credit report and income will be reviewed before you are pre-approved, giving the lender a more accurate impression of your financial status as compared to your word alone. Believe it or not, it is not uncommon for potential home buyers to stretch the truth about their financial status in order to be pre-qualified for a larger amount. Doing so only leads to wasted time and money looking at homes that are economically unfeasible, an undesirable scenario for all parties involved.

Shopping for a home is often a long, involved process. The last thing you want when you finally discover the home you want to purchase is to lose it to another, more prepared buyer. Being pre-approved gives you information about the maximum loan amount for which you will likely be approved, as well as the interest rate you can expect. Knowing a maximum loan amount and your probable interest rate allows you to calculate with more accuracy what your monthly mortgage payment would be for a particular home, a major factor in determining what home you can comfortably afford. Being pre-approved for a home loan can give you advantages in negotiation as well; sellers may be more inclined to accept your offer because of reduced uncertainty, and you may be able act quicker than another buyer since several steps of your application process have already been completed.

About the Author: Greg Sullivan is the President of www.electronicappraiser.com, a leading provider of home appraisals offering a nationwide personalized instant information about house values. For more information, please visit www.electronicappraiser.com.